APRA has announced the following capital treatment for reverse mortgages (where principal and interest payments are not required until termination of the facility, which is not fixed and normally occurs when nominated residents die, vacate the mortgaged property or the property is sold):

• a 50 per cent risk-weight will apply for reverse mortgages with LVRs of 60 per cent or less and a 100 per cent risk-weight for reverse mortgages with LVRs above 60 per cent and up to 100 per cent;
• where the LVR rises above 100 per cent, the exposure should be treated as impaired.

In order to receive a risk-weight of less than 100 per cent, the lending and other relevant criteria set out in Attachment C of APS 112 must be met. In all cases where a risk-weight of less than 100 per cent has been assigned, the reverse mortgage must continue to comply with the relevant criteria at all future times. If any of the criteria is breached at any time, the exposure will immediately attract a 100 per cent risk-weighting.

As APRA considers that shared equity mortgages (where both the lender and borrower share in any gain or loss in the value of the mortgaged property) are similar to direct investments in property a 100 per cent risk-weight is applicable.

The Parliamentary Library has published a helpful Bills Digest of the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Bill 2010.

The Digest reviews APRA’s current powers and proposed changes.

We are delighted that Ronen Atzmon has been appointed as Executive Counsel to our new Melbourne office which is opening on Tuesday 1 June.

Ronen worked at Cuscal for 15 years, the last 6 years as General Counsel.

He has experience in corporate governance, institutional and retail banking, and general commercial matters and was involved in many of Cuscal’s significant complex commercial transactions.

He will work closely with our lawyers in Sydney, Adelaide and Brisbane to provide specialist credit union and mutuals advice.

I spoke at the Australian Financial Institution Auditors Association Annual Conference yesterday on the topic of the audit implications of the National Credit Act including licensing, credit code changes and responsible lending.

Whilst we don’t know the form yet of the annual compliance certificate required to be lodged by licensees under section 53 of the National Credit Act it appears that as it will relate to the general conduct obligations in section 47, including compliance with “credit legislation” in section 47(1)(d), its scope will be quite wide.

“Credit legislation” is defined in section 5 as meaning:
(a) the National Consumer Credit Protection Act; and
(b) the Transitional Act; and
(c) Division 2 of Part 2 of the ASIC Act and regulations made for the purpose of that Division; and
(d) any other Commonwealth, State or Territory legislation that covers conduct relating to credit activities (whether or not it also covers other conduct), but only in so far as it covers conduct relating to credit activities.

The certificate could therefore extend to compliance with State interest cap restrictions, Privacy Act credit provisions and AML/CTF issues.

And it appears that a credit compliance breach which involves a breach of the ASIC Act (eg unfair contract terms, misleading conduct) could also have implications for a licensee’s AFS licence and completion of FS71.

The Sydney Morning Herald has reported (here) on an investigation at the ANZ Bank into allegations that unsecured-debt collections staff used a fake profile on Facebook as a tool to entice skipped defaulters into providing details about themselves and their locations.

Whilst a lot of personal information is made publicly available on the internet by individuals, collecting personal information without disclosing its proposed use is a breach of the Privacy Act.

Similarly contacting relatives and friends of a borrower to either discuss the customer’s financial affairs or using a fake story to obtain personal information about the borrower could be unlawful.

You should review your collections procedures to ensure your use of social media to collect information is lawful.

In its 2010-2011 Budget, the Federal Government has acknowledged flaws in the First Home Saver Accounts scheme and announced a tax concession for interest on deposits.

First Home Saver Accounts
The Government has announced it will allow savings in an FSA Account to be paid into an approved mortgage after the end of a minimum qualifying period, rather than requiring it to be paid to a superannuation account.

The Government will release draft amendments for consultation over the coming months.

The changes will apply for houses purchased after Royal Assent of the legislation giving effect to this change.

Tax discount on deposit interest
The Government has announced that from 1 July 2011, individuals will be eligible for a tax discount equal to 50 per cent on up to $1,000 of interest earned, including on deposits held with any bank, building society or credit union, as well as bonds, debentures or annuity products.

The Government will consult on details concerning the operation of the discount, including on the final scope of eligible savings products and the mechanism for applying the discount to interest earned indirectly by individuals.

The most likely starting point will be the Chapter 4 of the Henry Tax Review Final Report.