FIRST MORTGAGE STATUS

COI 16 included instructions on the newly acquired ability for Westpac to forgo first mortgage status as a consequence of the recent changes to s.45 of the DSH Act. The purpose of this Instruction is to enlarge upon the circumstances in which Westpac will forgo first mortgage security. This Instruction supersedes the "FIRST MORTGAGE REQUIREMENT" section of COI 16 and the "COMBINED DSH/ADFHLAS ASSISTANCE" section of COI 14.

Section 45 of the DSH Act was amended on 26 June 1992 by the Veterans' Affairs Legislation Amendment Act 1992. Section 45 of the DSH Act lists a number of sub-clauses in the Agreement between the Commonwealth and Westpac which cannot be revoked or amended by simple agreement between the parties. In particular, this section included reference to sub-clause 8.3 of the Agreement which provides that all advances shall be secured by way of a first mortgage. The amendment to s.45 omits the reference to sub-clause 8.3. The amendment, therefore, allows the Commonwealth and Westpac to waive the first mortgage requirement on DSH loans in certain circumstances.

Westpac and DSH have exchanged letters specifying the circumstances in which Westpac is prepared to vary the general first mortgage requirement. This agreement covers the broad principles only and Westpac reserves the right to consider cases on an individual basis.

Westpac has agreed to take a second mortgage behind all home lending schemes administered by Commonwealth, State or Territory Government instrumentalities which will only accept first mortgage security either as a result of statutory restriction or policy requirements.

In addition, Westpac has also agreed that it is prepared to take a second mortgage behind the National Australia Bank but strictly in the context of its involvement with the Defence HomeOwner (ADFHLA) Scheme. This means that a married couple who each qualify in different schemes may now receive concurrent assistance from the respective schemes.

It should be remembered that the general requirement for first mortgage security still applies. Also, when an alternative security is being considered in circumstances described above, the usual lending criteria are to apply, that is:

creditworthiness of the applicant(s);

sufficient equity must be available in the property for Westpac to be satisfied that adequate security exists for the finance which Westpac is requested to provide.

These changes will be incorporated in the revised GOs which are currently in preparation.

Attached are replacement pages for COIs 14 and 16.

FELICITY M. BARR

GENERAL MANAGER

1 September 1992