Explain the role of the rba with respect to interest rates

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Reference no: EM131090450 , Length: 5000 Words

 

Assignment Certificate IV in Finance and Mortgage Broking (CIVMBv1)

Section 1: Case study 1 - Malcolm and Susan Johnson

Background

Malcolm and Susan Johnson 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 also saving for their own home.

They have been looking at properties for the last month and one has really caught their eye, although the bathroom and ensuite 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 Susan's brother (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

Address:

Unit 12, 43 Seaside Parade, Coastville, <Your State>

Purchase price:

$490,000

Description:

2 bedroom strata title unit

Agent details:

Steven Allstone

Phone:

8282 1113

Mobile:

0412 880 088

Current address:

Unit 12, 22 Wentworth Lane, Highville, <Your State>


Malcolm and Susan have lived there 5 years

Home phone:

9001 2121

Funds position

Purchase price:

$490,000

Estimated costs:

$20,000

Total required:

$510,000

Loan:

$430,000

Own contribution:

$80,000

Assets

Capital Bank savings account (joint)

$92,000

Capital Bank cheque account (joint)

$1,600

Holden Commodore SS, eight years old (Malcolm)

$25,000

Suzuki Baleno, seven years old (Susane)

$9,000

Superannuation - Capital Bank (Malcolm)

$28,000

Superannuation - Capital Bank (Susan)

$62,000

Household effects (insured value)

$40,000

Liabilities

Capital Bank personal loan (Malcolm)

$3,600

(repayments $180 p.m.)

Capital Bank Visa card (Malcolm)

$200

(limit $2,000)

Capital Bank Visa card (Susan)

$600

(limit $3,000)

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

Malcolm (date of birth 21/2/86)

Position:

Team leader (full time)

Employer:

ACME Limited

 

101 City Rd, Westside, <Your State>

Phone:

9800 1111

Income (gross):

$55,000 p.a., net monthly income: $3,705

Employer contact:

Alison Johnson, HR Manager

Length of service:

10 years

Driver's licence:

8855KL

Email:

[email protected]

Susan (date of birth 8/10/87)

Position:

Accountant (full time)

Employer:

Phones R Us

 

804 High Street, City East, <Your State>

Phone:

9910 2033

Income (gross):

$91,000 p.a., net monthly income: $5,629

Employer contact:

Stan Adams, HR Manager

Length of service:

12 years

Driver's licence:

17016C

Email:

[email protected]

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, <Your State>

Phone: 8281 1382

Fax: 8290 1800

The loan requirements

  • 30-year term
  • Premium Option home loan
  • Standard variable interest rate @ 5.57%
  • 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

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.

Task 2 - Gathering and documenting client information

Complete the Client Information Collection Tool using the information provided in the case study.

Task 3 - Assessing the clients' situation

1. 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)

2. Stress testing the loan repayments

Most lenders add an additional 2-3% on to the loan repayments to make sure a borrower can afford the repayments. If interest rates moved 3% higher, what would Malcolm and Susans loan repayments be, do you think they would be able to cope with the extra repayments, and what could you recommend that may remove this consideration as a risk factor?

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.

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)

Task 6 - Prepare your recommendation

1. 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.

2. (a) 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)

2. (b) 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.

Task 7 - Advising on strategies

Following the presentation of your proposal, Malcolm and Susan 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)

Task 8-

Malcolm & Susan have called to discuss whether they should consider fixing the interest rate on their loan - they say their parents have said 'you never beat the bank when you fix', and yet their friends are telling them about a loan where they can 'have a bit of both'.

1. Explain the role of the RBA with respect to interest rates and why it is necessary to have these controls.

2. Suggest how Malcolm and Susan could potentially solve their dilemma.

Task 9 - Settlement

Section 2: Case study 2 - John Simpson

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.

Project tasks

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 his needs? (150 words)

Task 11 - Usingequity

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)? Please show the percentage up to two decimal places in your answer.

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' product.

Task 13 - John's professional network

1. Name three (3) parties John may wish you to keep informed of the progress of his finance application.

2. Briefly outline to John the process that will occur from your meeting onwards.

3. Although some of these stages do not involve the mortgage broker, briefly explain why it is important to keep abreast of developments.

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. Advise 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

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.

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?

Reference no: EM131090450

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