Background

John has been a self-employed carpenter for 10 years, and operates his business under a company structure.

He has approached you for help in arranging finance for a potential purchase of an investment property. He was referred to you by his accountant, who is a friend of yours. Apart from purchasing the home he currently lives in some 12 years ago, he has had no other experience in dealing with a mortgage application, though he has recently obtained finance for a new work truck via his local bank.

He has found a property he likes, and has already secured the services of a solicitor to assist with the purchase.

John currently owes $375,000 and estimates his home to be worth $650,000.

He has agreed to purchase the investment property for $300,000 and needs to borrow the full purchase price plus $20,000 to cover stamp duty, and other associated costs including a $5,000 ‘cash reserve’ in case there are delays in securing a tenant for the property.

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

Task 10 — Establishing level of financial knowledge

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

Your response to this Task should demonstrate your knowledge of the different communication skills you can use to confirm your clients understanding.

Refer to Topic 2-1 for further information that may assist you with this task.

Task 11 — Using equity

1. How is it possible for John to borrow 100% of the purchase price + costs?
2. Assuming John uses the same bank to finance his home and the investment property he wishes to purchase, what is the loan to value ratio (LVR)?

Refer to Topic 3-1 for information on collateral.

Task 12 — Self Employed special considerations

1. As John is self-employed via his company, name three (3) possible extra documents you will need to obtain and assess?
2. If a Low Doc application is an option for the customer, name three (3) extra documents you will need to obtain and assess.
3. Explain how applying for a ‘Low Doc Loan’ could lead the mortgage broker to be accused of recommending an ‘unsuitable’

1. What types of documents would a self-employed business owner have to hold to keep record of his financial situation? Refer to Topic 1-3 and Topic 3-3.
2. What additional documents have not already been gathered that you will be required to obtain if offering a ‘Low Doc Loan’. Refer to Topic 1-3 and Topic 3-3.
3. It’s important to understand the nature of ‘Low Doc Loans’ and how and why they may be offered to Refer to Topic 1-2, Topic 1-3 and Topic 3-3 for more information.

Task 13 — John’s professional network

1. Name three (3) parties John may wish you to keep informed of the progress of his finance
2. Briefly outline to John the process that will occur from your meeting
3. Although some of these stages do not involve the mortgage broker, briefly explain why it is important to keep abreast of

1. Here you are asked to consider other relevant parties that may be involved in assisting John in either his business or this property Refer to Topic 3-4.
2. and In your own words outline the process that will be followed leading up to approval and settlement of the property purchase and others, besides you that might be involved. Refer to Topic 3-1, 3-3 and 3-4.

Task 14 — Impact of credit history

John tells you that his former wife failed to properly meet their unsecured personal loan debt obligations before they separated. Although John eventually repaid the debt he is afraid that this incident may count against him when he applies for a loan.

What would you advise John about:

1. Name two of the major credit reporting agencies and advise what information these files contain?
2. What procedure is involved and the associated costs to obtain a copy of your own file from each of these agencies on both an urgent and a non urgent basis and can a free copy be obtained?
3. If there are errors on the file what is the procedure for John to follow in order to have these errors rectified?
4. What are the Lender’s legal obligations if they decline an application due to the content of the credit agency file (200 words total).

1. Provide details of the information that Credit Agencies keep and list two agency names.

Topic 3-1, and the website <http://www.mycreditfile.com.au> will assist in answering questions in this Task.

2. Research individual Credit Agency websites to ascertain the procedure and
3. Explain John’s rights including the process to follow if his former wife disagrees with any information in her credit Refer to Section reference above and Credit Agency websites.
4. Provide detail on the impacts of a poor credit history and explain the process adopted by a lender if a loan is declined because of poor credit

Task 15 — External dispute resolution

During the course of the loan process, John is starting to become upset with the time it’s taking to get him an approval. Although you’ve explained that this is because of delays with the lenders processing system due to staff being away, you’re concerned the matter may escalate beyond your control.

If COSL was your EDR provider, explain their role in the process.

Using your own words explain the process EDR process using COSL as the provider. Refer to Topic 2-2, Part 5.

Task 16 — Effective access to files

The loan application is finally approved. Loan offers have been produced by the lender, as have numerous documents that the client needs to access and review.

John’s away at the moment, and his email provider has a size limit on the data that can be sent via email. What is a potential solution for John, and name a provider that could assist?

Refer to Topic 2-3.