Delegated Underwriting Authority (DUA) is an agreement between a lender and their Lenders Mortgage Insurer that allows the lender to approve LMI policies for home loan applications on behalf of the mortgage insurer.
This is often referred to as the lender having “open policy” because they usually have the discretion to approve loans that wouldn’t normally be approved by the mortgage insurer.
Generally, for a normal home loan application that requires mortgage insurance, the lender and the mortgage insurer must both approve the loan.
If the lender holds a DUA and approves the loan, the LMI policy is automatically approved as well, there’s no need for the mortgage insurer to even see the application.
How does this help me?
This all happens behind the scenes, so how will this benefit your loan application?
- Faster approval: There’s no need to wait an additional 48 hours for the mortgage insurer to assess your application. This means your loan is approved much faster than usual.
- Flexible credit policies: The lender uses their own policies, not those of their insurer. This allows them to take a common sense approach rather than sticking to the LMI guidelines.
- No credit scoring: LMI providers are known to have very strict credit scoring algorithms, which result in a number of good loans being declined. The lenders typically have more lenient credit scoring and some have no credit scoring at all.
The flexible credit policy is especially useful. When a loan is mortgage insured, borrowers are often frustrated by a lender’s inability to use common sense. In fact, it’s usually the mortgage insurer not the lender that’s being strict with their guidelines.
With a DUA in place, this is no longer a problem. The lender has the option to approve any loan that falls within their agreed DUA criteria.
Typical DUA criteria
Not every loan will meet the criteria for the lender’s Delegated Underwriting Authority (DUA). Below are some examples of a loan that would be outside of the lenders DUA:
- The total aggregate (LMI insured) home loans exceeds $1.0 million.
- The loan purpose is for bridging or an off the plan purchase.
- The valuation of the security property identifies adverse issues, e.g. the property is in a bad condition or the valuer identifies something about the property which is high risk.
The credit check has:
- More than one paid default greater than $1,000 for financial institutions.
- More than two paid defaults greater than $500 in total for non-financial institutions.
- Unpaid defaults.
- The individual property size of the security provided exceeds 50 hectares.
- The individual unit size of the security provided is less than 40 square metres.
- Where the application involves non resident borrowers.
- Where collateral security offered involves taking a second mortgage.
- Non arms length transactions: this relates to the sale of a property where a registered real estate agent isn’t acting for the vendor. This also includes advantageous/favourable purchases to a family member at a discounted price or where a vendor is selling the property at a discounted price to a person he/she is indebted to.
- Applications previously decisioned by the mortgage insurer: where lenders are aware an application has been previously assessed and declined through the bank or another financial institution, the application should be forwarded to Credit Decisioning in order to determine whether it should be submitted to the insurer for a decision.
Loans outside the lender’s DUA
If a loan falls outside the lenders DUA then it will be referred to the mortgage insurer for a decision. The strict guidelines and credit scoring used by the insurer will then apply. In most cases, this means that the loan will be declined.
Which lenders have a DUA?
Several major lenders have a DUA with their mortgage insurer. As odd as it may sound, many lenders that have their own LMI company don’t have a DUA in place and sometimes have quite different guidelines.
There are several lenders that have a DUA in place with either Genworth Financial or QBE LMI, which are the two largest LMI providers in Australia.
The list of lenders and their DUA criteria is subject to change at any time, so please contact us if you require a lender with a DUA.
Apply for a home loan
Our mortgage brokers know which lender can approve your loan on behalf of the mortgage insurer. We are the specialists in LMI policy and DUA criteria.
Please fill in our free assessment form or call us on 1300 889 743 and one of our mortgage brokers will give you a call to discuss your situation.