FINANCE-Andrew and Stephanie Wilson are a young couple about to buy their first home.

Assignment

MB-11SN9-2.1 Finance and Mortgage Broking

Section 1 — Case study 1— Andrew and Stephanie Wilson

Background

Andrew and Stephanie Wilson are a young couple about to buy their first home. They have been married for five years and during that time have rented an apartment while saving for their own home.

They have been looking at properties for the last month and one has really caught their eye, although the kitchen and bathroom could do with a little work. They had planned on shopping around the various lenders themselves to find the most appropriate loan for their needs, but as they both work, they have little time to do the research necessary. And, as they both admit, they have limited knowledge of the loan products available and might have difficulty in evaluating the options.

They have not paid a deposit at this stage.

On a suggestion from Stephanie’s father (one of your former clients) they have contacted you about the loan.

Following is a summary of the details of the property they wish to purchase, the couple’s financial and employment details, and the loan features they require.

The property

The couple

Funds position

Assets

Liabilities

All debts have been repaid according to arrangements. In relation to the credit card debt, the minimum monthly commitment should be calculated at 3% of the credit limit.

Income/employment

Andrew (date of birth 21/2/84)

Stephanie (date of birth 8/10/85)

Interest income

Approximately $40 per month from $12,000, remaining in savings account after home loan deposit. Interest 4% p.a.

Solicitor’s details

Jones and Co
22 High Street, City East, 2997

Phone: 02 8281 1382
Fax: 02 8290 1800

The loan requirements

• 25-year term

• Premium Option home loan

• standard variable interest rate @ 7.57%

• proposed settlement date — 6 weeks time

• ability to make additional payments from time to time without penalty

• fortnightly repayment option

• redraw facility

• funds access via card

• offset facility.

Assignment tasks(student to complete)

Task 1 — Initial disclosures

Following a personal introduction, and before you begin gathering information about the clients’ existing financial situation or needs, there are certain disclosures you are required to make as a finance broker regarding the way you are remunerated and the range and limitation of your services.

Identify and describe three (3) of these disclosures. (200 words)

Student Response:

Assessor feedback:

Task 2 — Gathering and documenting client information

Complete the Client Information Collection Tool using the information provided in the case study, (Appendix 1).

Note: any assumptions you make should be listed, and not be in conflict with the case study information already provided.

Task 3 — Assessing the clients’ situation

Based on the information provided in the case study and using the tools available to you (e.g. loan calculators, including those available on lenders’ websites), provide an assessment of the clients’ borrowing ability and ability to service the loan they require.

Consider and comment on issues such as:

• borrowing ability in relation to the loan required

• deposit requirements for the loan required

• repayment ability based on the loan required

• likelihood that the clients will be able to meet their financial obligations

• do they require Lenders Mortgage Insurance (LMI), and if so, how much will it cost

• any other issues that may impact, now or in the future, on the clients’ ability to meet their obligations, including any possible risks.

Provide data to support your comments and conclusions. (750 words)

Student Response:

Assessor feedback:

Task 4 — Responsible lending obligations

The National Consumer Credit Protection Act 2009 imposes ‘responsible lending’ obligations on brokers that must be satisfied by all people arranging loan applications. The primary objective under responsible lending guidelines is that the credit facility is ‘not unsuitable’ for the borrower.

Identify and describe the key factors that must be taken into consideration when assessing whether a credit facility is ‘not unsuitable’ for a borrower. (100 words)

Student Response:

Assessor feedback:

Task 5 — Reasonable enquiries

In the course of gathering information about the couple, you are required under the National Consumer Credit Protection Act 2009 to make all ‘reasonable’ enquiries to determine a borrower’s objectives, requirements and financial situation.

Identify at least six (6) ‘reasonable’ enquiries that you would make with the clients in the case study and explain why these enquiries are important in terms of NCCP compliance. (200 words)

Student Response:

Assessor feedback:

Task 6 — Prepare your recommendation

a. Based on the information presented in the case study, prepare a written professional proposal to your clients. (750 words)

The style and language used in the proposal should be appropriate to the case study client’s level of understanding. It should be clear and concise, and written in language that is easy to understand, while still remaining professional in its presentation.

You may base your response to this part of the assignment on either your knowledge of the products currently offered by your own organisation, or the products offered by a lender you have researched.

In your proposal, you should include:

• a summary of your understanding of the clients’ needs

• a summary of their current financial position

• the product options you have considered to meet their needs

• the option you recommend and the reasons for the recommendation. Explain how the recommended product meets the clients’ needs

• disclosures applicable to the situation (a summary of likely applicable disclosures is adequate). Consider disclosures that are required by both legislation and by lenders codes of practice.

Note: List any assumptions you have made about the clients and their situation in order to complete this part of the assignment.

Student Response: part a

b. i) Describe the workings of any home buyer assistance schemes and stamp duty concessions that may be available in your State or Territory. Would your client be eligible for any of these? (150 words)

Student Response: part b i)

ii) Provide a summary of all additional costs and fees that the couple should be made aware of. (150 words)

Note: When considering your response to these questions, bear in mind the couple’s inexperience with the borrowing and property purchasing process.

Student Response: part b ii)

Assessor feedback:

Task 7 — Advising on strategies

Following the presentation of your proposal, Andrew and Stephanie say that they would like your advice regarding strategies that will help them to pay down their home loan as quickly as possible.

• List strategies or methods that will help them achieve their aim.

Provide the advantages and disadvantages of each. (250 words)

Student Response:

Assessor feedback:

Task 8 — Settlement

Outline in detail the steps a Lender should take in order to document, settle and administer this application, post-approval. (300 words)

Student Response:

Assessor feedback:

Section 2 — Case study 2—Natalie

Background

Natalie is a single parent. She is returning to the workforce after a period looking after her young child. Because of the location of her new employment, she needs to buy a car for transport.

In the past, Natalie’s former partner managed all the household finances, now she has to make the decision about how to finance the purchase of the car. She has insufficient funds to buy it outright.

Natalie comes to you for advice on credit and the best way to finance the purchase of the car. It is likely to cost about $15,000. She would prefer to obtain finance for the whole amount. Assume that her income will be sufficient to cover the repayments.

After reading the case study above, answer the questions below.

Project tasks (student to complete)

Task 9 — Establishing level of financial knowledge

What communication skills might you use to establish and confirm Natalie’s level of knowledge about credit and finance and to establish her needs? (150 words)

Student Response:

Assessor feedback:

Task 10 — Offering financial options

a). Suggest two suitable types of credit options for Natalie.

b). Explain why you have chosen these credit options, and provide a comparison of the two.

c). Recommend one of the options, with your reasons for the recommendation. (200 words)

Student Response: part a)

Student Response: part b)

Student Response: part c)

Assessor feedback:

Task 11 — Explaining financial options

a). Provide a simple explanation of the difference between a secured loan and unsecured loan to Natalie for the purpose of her loan.

b). Explain the implications of taking out a secured loan. (150 words)

Student Response: part a)

Student Response: part b)

Assessor feedback:

Task 12 — Explaining finance costs

a). Provide Natalie with a summary of potential fees and charges, (both inside and outside of the comparison rate), that might be applicable to the credit option you have suggested.

b). Explain how she can compare the real cost of loans offered by different credit providers.

c). Explain why your suggestion is likely to provide an indication of the real cost. (150 words)

Student Response: part a)

Student Response: part b)

Student Response: part c)

Assessor feedback:

Task 13 — Impact of credit history

Natalie tells you that her former partner failed to properly meet their unsecured personal loan debt obligations before they separated. Although Natalie eventually repaid the debt she is afraid that this incident may count against her when she applies for a loan.

What would you advise Natalie about:

a). The records kept by credit reporting agencies (please include at least two major credit agencies)?

b). the procedure and cost involved in obtaining a copy of her credit file?

c). The accuracy of records?

d). The impact of credit history including the legal obligations of Lenders? and

e). Her rights?

(200 words total).

Student Response: part a)

Student Response: part b)

Student Response: part c)

Student Response: part d)

Student Response: part e)

Assessor feedback:

Appendix1 — Client information collection tool

Appointment date:

Appointment time:

Assets and liabilities

Surplus/deficiency: $___________________________________

Needs analysis

Notes

Anticipated fees and charges

Loan interview diary

Name(s) of client(s) present at interview

Date of interview:

Location of interview

Indicate all clients who were interviewed in person

Do all of the clients appear to clearly understand English?

If not, have the services of an interpreter been recommended?

Do all of the clients clearly benefit from taking out this loan?

If not, what inquiries have been made to ascertain the level of benefit to each party of the loan?

Are any clients acting as though they are under duress or other disability?

Are any clients acting as though they are unsure of anything
about the loan?

Are any of the clients acting as though they are unable to comprehend
their obligations?

Are there any guarantors?

If yes is answered to any of the above questions, have the clients
been advised to seek the services of a lawyer or financial adviser?

Provide details of other pertinent information obtained during the loan interview which may be of interest or any unusual circumstances you may wish to record