Document ID: chunk:federal_register_of_legislation:F2024L01053:reg:7:p2
Version: federal_register_of_legislation:F2024L01053
Segment Type: reg
Provision Reference: reg 7 (pt 2/3)
Character Range: 96291–99533

obligation.
 4.              For the purposes of paragraph 5 of this Attachment the following rule applies: where a counterparty or debt obligation has solicited credit ratings from multiple rating agencies, the following guidelines must be followed in determining the counterparty grade:
         1.           if there are two solicited ratings that correspond to different counterparty grades, the lower counterparty grade must be used for the debt obligation; or
         2.           if there are three or more solicited ratings that correspond to different counterparty grades, the ratings corresponding to the second-best of those counterparty grades must be used for the debt obligation.
 5.              APRA's written approval must be sought if a general insurer, Level 2 insurance group, a life company or a private health insurer wishes to use the rating determined by a rating agency not included in Table 1 and Table 2 above.
 6.              The counterparty grade for assets secured by residential mortgages (as defined in paragraph 1(b) of this Attachment) is determined in Table 3.
    Table 3: Assets secured by residential mortgages
Counterparty grade     Standard residential mortgages  Other residential mortgages
'Loan to value ratio'  No LMI                          >40% LMI                     No LMI  >40% LMI
≤ 60%                  2                               2                            3       2
> 60% but ≤ 80%        2                               2                            4       3
> 80% but ≤ 90%        3                               2                            5       4
> 90% but ≤ 100%       4                               3                            5       4
> 100%                 5                               4                            5       5

 1.              'Loan to value ratio' is the ratio of the value of the asset (i.e. loan) to the market value of the collateral. The market value of the collateral is the value at inception or, where a substantive valuation has subsequently been carried out, this subsequent valuation.
 2.          A standard residential mortgage is defined as a mortgage on an existing residential property where the general insurer, Level 2 insurance group, the life company or the private health insurer has:
         1.           prior to loan approval and as part of the loan origination and approval process, documented, assessed and verified the ability of the borrowers to meet their repayment obligation;
         2.           valued any residential property offered as security;
         3.           established that any property offered as security for the loan is readily marketable; and
         4.           the general insurer, Level 2 insurance group, the life company or the private health insurer has at all times unequivocal enforcement rights over the mortgaged property (including a power of sale and a right to possession) in the event of default by the borrower.
    The general insurer, Level 2 insurance group, the life company or the private health insurer must also revalue any property offered as security for such loans when it becomes aware of a material change in the market value of property in an area or region.
 1.