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. These disclosures include the way you are remunerated and the range and limitation of your services. 1. There are four (4) documents listed in ASIC Information sheet INFO 146 ‘Responsible lending disclosure obligations – Overview for credit licensees and representatives that must be provided to customers. Refer to this Information sheet and the information contained in your topic notes to answer part (a) and (b) below. (a)Identify which of these four (4)documents you must provide your client before you commence providing credit assistance and explain the main disclosures relevant to that document. (40 words) Student response to Task 1: Question 1(a) 1.CREDIT GUIDE: A credit guide provides preliminary information about a finance broker to a consumer. The time at which I have to provide a credit guide will depend on what type of entity I am and what credit activities I engage in, but will generally be before I engage in credit activities with the consumer. 2.QUOTE: A quote shows the customer the estimated cost of using the mortgage broking service. Before providing credit assistance, the mortgage broker must give the customer a quote. The customer must accept the quote by signing and dating it. Provide the customer with a copy of the accepted quote. (A mortgage broker needs to make all home loan customers aware of the range of fees and charges for which they will be responsible.) 3.PROPOSAL DOCUMENT: A proposal document sets out the costs to the consumer of using your services, including any commissions you may receive. You have to give a proposal document at the same time you provide credit assistance to a consumer. 4.WRITTEN ASSESSMENT: This is a preliminary or final written assessment that a credit contract or consumer lease is ‘not unsuitable’ for the consumer. You are required to give a free copy of the written assessment to the consumer if they ask you for one within seven years of entering into the credit contract (if you are a credit provider) or of the date of the quote (if you are a credit assistance provider). You are not required to give a written assessment to a consumer if the credit contract or consumer lease is not entered into or the credit limit is not increased (if you are a credit provider), or if you do not provide credit assistance (if you are a credit assistance provider). Before commencing providing credit assistance, the broker must provide a credit disclosure/guide as outlined by the NCCP Act 2009 (National Credit Act). This outlines; • what your obligations are • the different types of disclosure documents that you may have to give to consumers • the circumstances that trigger a requirement to give those disclosure documents • special requirements and exemptions that apply to some entities, or licensees that engage in credit activities through those entities • the type of information that needs to be included in the disclosure documents, and • instances where these documents can be combined. A credit guide needs to be provided to the client before prodiving any credit assistance. The main disclosures relevant to a credit guide are: your name, contact details, ACL number or credit representative number information on how disputes are resolved with a consumer – contact details for internal dispute resolution or the EDR scheme of which you are a member Assessor feedback: Resubmission required? Competency not yet Demonstrated Task 1(a)- you are asked to identify which of these documents, that you must provide your client once you have decided to provide credit assistance but before you have gathered information about the client’s existing financial situation or needs and then explain the main features. (Hint – there is only one) Please refer to Topic 3.1, section 13 in your course material, section 113 and 114 of the Australian Consumer Credit Legislation and resubmit. NOTE: If you do not get this right you risk civil and criminal actions from ASIC Yes (b) Identify which of these four documents you will provide the client should you intend to charge a broker fee and explain what is required for it to be valid. (40 words) Student response to Task 1: Question 1(b) A quote and proposed document should be provided with a credit guide and be signed by the client for the broker to be able to charge a broker fee. Assessor feedback: Resubmission required? Competency Demonstrated Will accept quote as the correct document. Feedback Proposal document – The proposal document typically does not need to be given until coming back to the client with a particular suggestion.You actually provide credit assistance at the point that you suggest a particular product with a particular lender (or suggest the client stays with their existing product or lender), or when you assist a client to apply for a particular product with a particular lender. No Task 2 — Gathering and documenting client information Complete the Client Information Collection Tool (located at the end of the assignment in Appendix 1)using the information provided in Case Study 1. Note:Any assumptions you make should be listed and should not be in conflict with the case study information already provided. Assessor feedback: Resubmission required? Competency not yet demonstrated Please amend all highlighted areas in Appendix 1. Please strictly read and use case study 1 facts – Clinton and Jennifer Andrews.See comments at Appendix 1. Yes Task 3 — Assessing the clients’ situation 1. Using theExcel or Online version of the Genworth Serviceability Calculator,calculate the Genworth NDI for the borrowers. This will require you to enter all the data, including their future rental income. . Once you have completed the calculations, copy the data into the Serviceability Calculator (located at the end of this assignment in Appendix 2). Do not upload the Excel spreadsheet as a separate file. Assessor feedback: Resubmission required? Competency not yet demonstrated Refer to Appendix 2 as there are a number of errors. Please only use the figures provided in Case Study 1 and you should find the Genworth Serviceability Calculator User Guide (Google it) of assistance as well. When you resubmit please either complete the new Appendix 2 or upload the completed Genworth spreadsheet separately.This excel spreadsheet needs to be correct as it helps to complete part of Task 3.2a. Yes 2. 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. Consider and comment on the following issues: (a) the maximum loan using the Genworth calculator (b) deposit requirements for the loan required (c) combined net monthly income, less cost of living expense as specified by the borrower (d) do they require Lenders Mortgage Insurance (LMI) and if so, how much will it cost? Refer to Genworth LMI estimator for this figure (e) 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. (No word count requirement for questions (a) to (d)). Question (e) (100 words) Student response to Task 3: Question 2(a) $797,000 Student response to Task 3: Question 2(b) $45,000 Student response to Task 3: Question 2(c) $476,893.19 – 64,043.72 = $66,854.47 Student response to Task 3: Question 2(d) $8,627 Student response to Task 3: Question 2(e) The clients may be concerned that interest rates are currently too high or are about to rise. Another key risk would be uncertainty about the product recommended such as misunderstanding the products benefits and features, placing too much emphasis on any product negatives, a poor selection of product (ie it doesn’t match customers investment goals, appetite for risk or investment style) Also they may be concerned that future uncertainties that may result in hardship when repaying the debt, such as unemployment or illness. Assessor feedback: Resubmission required? Competency not yet Demonstrated Q2a) Once you correct your serviceability sheet the max loan amount will change. Please amend and re-submit. Q 2c)Amount calculated is incorrect. Please use combined net monthly income( see case study for amounts) less living expenses. Q 2e)you have not clearly addressed any other issues that may impact, now or in the future, on the clients’ ability to meet their obligations, including any possible risks.( as a broker and looking at their financial position what are your thoughts?) Yes Task 4 — Using equity 1. Although Clinton and Jennifer have chosen to borrow 90% LVR on the investment property plus the LMI costs, what other option could you present that would avoid the cost of LMI?(100 words) Student response to Task 4: Question 1 Deposit another 10% from their equity on home to make 80% LVR and no need to pay LMI The clients can choose to refinance their existing mortgage on their owner-occupied home to gain additional funds, which can then be contributed to the new investment property so they can pay a deposit of 20% in order to avoid LMI. Assessor feedback: Resubmission required? Competency not yet demonstrated Apart from equity what other resources is available to avoid LMI? Using the existing case study facts you need to clearly explain to client how they can avoid LMI? If they borrow 80% where are they going to get the other funds – this needs to be clearly explained Yes 2. Explain how it could be possible for Clinton and Jennifer to borrow 100% of the purchase price ($450,000) and obtain a tax benefit for the interest charged. (100 words) Student response to Task 4: Question 2 Take equity from their existing home loan and add another 20% so they may borrow 100% of the purchase price. Assessor feedback: Resubmission required? Competency demonstrated No 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 to Task 5 In terms of credit assessment under the NCCP Act, it imposes responsible lending obligations that require a credit provider to ensure a credit facility is suitable for the borrower. That is to say, The NCC states that a credit provider must not enter into a contract with a person that is unsuitable, such as a loan where: • the customer cannot repay without suffering hardship, or • a contract that does not meet the customer’s requirements and objectives. A credit provider must: • make reasonable enquiries about the customer’s financial situation, requirements and objectives • take reasonable steps to verify the customer’s financial situation • decide whether the credit contract the customer is requesting is ‘not unsuitable’ for that customer. Therefore, the following reasonable enquiries should be made to the clients. • the amount of credit required • the time frame for repayment • the purpose of the credit and the benefit to the borrower • whether the desired product has appropriate features and flexibility. • Take reasonable steps to verify the customer’s financial situation Also the followings are the reasonable enquiries that can be made related to the borrower’s: • appreciation of the risks associated with the features of a particular credit product, given their circumstances • domestic situation • previous credit history • income-producing activity, age and language skills, savings history and expenditure patterns.
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