Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p45
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 122389–125423

estate
 1.              An ADI may recognise commercial real estate and residential real estate collateral where the following requirements are met:
        1.           the risk of the borrower defaulting is not materially dependent upon the performance or cash flow of the underlying real estate asset or project but rather on the underlying capacity of the borrower to repay the credit obligation from other sources;
        2.           the value of the collateral is not materially dependent upon the performance of the borrower. This requirement is not intended to preclude situations where purely macro-economic factors affect both the value of the collateral and the performance of the borrower;
        3.           claims on the collateral are legally enforceable in all relevant jurisdictions and legal requirements for establishing the ADI's claim are fulfilled. The collateral agreement and the legal process underpinning the transaction must allow the ADI to realise the value of the collateral within a reasonable timeframe;
        4.           the collateral is valued at no more than the current fair value under which it could be sold under contract between a willing seller and an independent buyer on the date of valuation;
        5.           the ADI monitors the value of the collateral on at least an annual basis. More frequent monitoring is required where the market is subject to significant changes in value;
        6.            the ADI's lending policies clearly document the types of commercial real estate and residential real estate collateral that are acceptable to the ADI. Exceptions to, or overrides of, the ADI's policy must not be recognised as eligible commercial real estate and residential real estate collateral;
        7.           the ADI ensures that the real estate asset taken as collateral is adequately insured;
        8.           the ADI monitors and takes into account prior claims (e.g. taxation liabilities) on the real estate asset; and
        9.             the ADI monitors the risk of environmental liability arising in respect of the collateral.
    Junior liens over commercial real estate or residential real estate may be taken into account where there is no doubt that the claim for collateral is legally enforceable and constitutes effective credit risk mitigation.
 1.              An ADI may recognise IPRE that falls under the specialised lending asset class as eligible collateral where:
        1.           markets are well-developed and long-established;
        2.           losses stemming from lower risk IPRE lending (defined as exposures up to the lower of 50 per cent of the market value or 60 per cent of the lending value) are less than 0.3 per cent of outstanding IPRE exposures in each of the past three years;
        3.           overall losses stemming from IPRE lending are less than 0.5 per cent of outstanding IPRE exposures in each of the past three years;
        4.           the ADI publicly discloses how it has satisfied the conditions