Key Features of Legislation and Codes of Practice in Finance and Mortgage Broking

This document provides an overview of the key features of current legislation and codes of practice in finance and mortgage broking. It discusses the different types of lender forms and the information required to support a loan application. It also explores the key stages and features of the loan settlement process, as well as the types of security required by lenders. This information is essential for anyone involved in the finance and mortgage broking industry.

FNSFMB401 PREPARE LOAN
APPLICATION ON BEHALF OF
FINANCE OR MORTGAGE
BROKING CLIENTS

TABLE OF CONTENTS
TASK.........................................................................................................................................3
1. Key features of the current legislation and codes of practice relating to finance and
mortgage broking...................................................................................................................3
2. Different types of relevant lender forms............................................................................3
3. Information required to support a loan application............................................................3
4. Key stages and features of the loan settlement process......................................................4
5. Description.........................................................................................................................5
6. Features of the process.......................................................................................................6
7. Lender requirements and guidelines for loan applications and securing a loan.................6
8. Types of security required by the lenders..........................................................................7
THIRD PARTY REPORT ACTIVITY.....................................................................................7
Prepare a loan application......................................................................................................7
RESEARCH TASK AND WRITTEN/ORAL QUESTIONS..................................................10
REFERENCES.........................................................................................................................14

TASK
1. Key features of the current legislation and codes of practice relating to finance and
mortgage broking
There are various laws and the code of practice that has been established in relation
to the finance and the mortgage broking which are commenced to regulate the industry. There
is a mandatory credit licensing regime that has to be followed by those who are undertaking
the activity. There are strict regulations over the sanctioning process and the enhancement
powers which provide for the dispute resolution system. There are also the credit service
intermediaries that are governed by the codes of practice. And lastly some important
regulatory bodies that assume the responsibility of the credit control process.
2. Different types of relevant lender forms
There can be two relevant lender forms that are used in the sanctioning of the loans
by the lender:- Loan estimate- This is one type of the form that is to be mandatorily be provided by
the lender to the borrower within the three business working days. It shall hep the
companies with the comparison of the different loan offers that are provided to them.
Among these the best alternative shall be selected.
 Closing disclosure- This is the final and the closing document that is issued by the
lender that shall be specifying the various costs of the loan that is sanctioned and the
total cost that shall be applicable against receiving the loan. This is also issued in no
less than the three working days of business.
3. Information required to support a loan application
In order to prepare for an efficient loan application which is self-sufficient it must
disclose all the relevant information of the borrower which might be needed by the lender or
is required to convince regarding sanctioning of loan amount. The compilation of the loan
application can be divided into various sections:- Cover sheet- It shall be showing the name of the applicant, business name, address of
the sender and the receiver. It shall be depicting that the application is successfully
sent to the bank to whom the loan is applied (Lau, 2020). Cover letter- This part of the loan application consists of the three paragraphs, the
first one contains the request regarding the consideration for the loan, the second para
shall be describing the business of the applicant and the last para shall be disclosing
the future plans of the business.

 Amount and use of the loan- This part shall be specifying the amount of loan that is
required and the purpose for which such loan is being obtained like the capital
investment. History of the business- It shall be describing the facts about the business its legal
form, operations and the location where the operations of the company are conducted. Management team- It shall be providing the information related to management team
and their key personnels. They can be either be the permanent employees of the
company Marketing information- This section of the application form shows the market
information of the product and services that are offered by the business and also the
potential market that the company is targeting. Financial history- The financial history and position of the company are also the
important information that are required by the banker. This proves the credibility of
the business. Future projections- The data pertaining to the future of the company is also relevant
for the lender as he needs to evaluate the success of the plan and whether the enough
cash flows shall be generated so that the loan can be timely and efficiently be repaid
by the company. Collateral- The company shall have to list the available collateral security with them
and their fair market value against which the loan can be obtained. In case the
company is unable to pay back the loan then the banker shall be confiscating the
security. Personal financial statements- The bankers in order to accept the offer has to prior
check out the personal statements, tax returns and the net worth of the borrower for
the guarantee in the future.
 Additional documents- These documents can be additional which shall be
determining the capability of the business in terms of the future contracts, credit
ratings, market research information etc.
4. Key stages and features of the loan settlement process
The loan settlement procedure involve certain steps that rae to be followed in order
tyo obtain the settlement as per required condition :- Pre qualification process – This is the first step that is used in the origination of the
lending process where the various id proofs, credit ratings and the various statements

of the company are produced to lender to initiate the process by the borrower (Sen
and Rajagopal, 2020). Loan applications- Then the next step involves the creation of the loan application by
the borrower that shall be presenting the various important information of the
company to te lender sufficient for it to analyse the scope of the business and its credit
capacity. Application processing- This is the step where the lender shall be evaluating
regarding the accuracy and completeness of the data. They have the loan origination
system that is used for this purpose where the facts quoted by the business are verified
by the lender so that complete assurance can be obtained before the loan is sanctioned
by the banker. Underwriting process- Post the loan application is complete in all means the
underwriting process is applied on it which qualifies the borrower in terms of the
credit score, risk appetite and the payback capacity. They have their unique of
allotting the score. Credit decision- Finally based on all the conclusions the decision shall be made in
respect of whether the loan is to be accepted, rejected or is to be sent back to the
applicant for some further requirements that are remaining to be addressed. Quality check – This is the other quality control team that is appointed at the lenders
end who is responsible for analysing the critical variables, the rules and regulations
and the governance issues that could be faced by the banks. They are highly regulated
and controlled administration that is effected by the lender.
 Loan funding – This is the last step in the loan settlement procedure which is related
to the funding of loans to the borrower. This is executed post all the documents have
been signed by both the parties and the collateral has been obtained against the loans
so funded.
5. Description Term – The term in relation to the loan is the time period for which the loan is
sanctioned by the banker. This is the time period for which the company can use the
sum of money that is provided and as soon as this time period shall be expiring for the
company they are to repay the amount of loan with the interest charge that has been
imposed on it.

 Interest rate- Interest rate is the percentage that is charged on the principal amount by
the lender from the borrower. This is the cost of the sum of money that is being used
by the borrower for some productive purpose. Amount- The amount can also be referred as the principal that is provided by the
lender to the borrower. This is the sum of money that has been sanctioned in the form
of loan by the banker.
 Support documentation- The support documents in case of the granting a loan can be
the personal id proofs, credit score proofs, financial statements of the company,
address proof of the person. These can be used for verifying the details of the
company.
6. Features of the process
 Loan management- The complete loan management process of the lending company
that is executed has some features which are to be essentially undertaken to extend a
safe and secure loan to the borrower (Saindane and et.al., 2021). The process starts
from the loan origination where the borrower applies for the loan to the lender and
this gets sanctioned by the bank. The next step is related to the servicing of the loans
and further the lender has to collect the debt that is due from the borrower either in the
form of principal amount or in the form of interest. The final step involves the
reporting and analytics.
 Instructing valuers to assess the value of a property or other types of security- A
professional property valuer shall be ascertained who shall be valuing the property
such that the exact market value can be assessed by the valuation officer. The owner
should also be handled with the responsibility of valuing the asset so that the double
verification can take place. This shows that as soon as the loan is unable to be repaid
then in that case this security can be used to repay the amount.
7. Lender requirements and guidelines for loan applications and securing a loan
There are some lender requirements that are to be fulfilled by the borrowers in order
to secure the loan from the lenders. The major requirements are that they must know about
the purpose for which the loan is obtained by the borrower, the other is the business
experience and the history of the business, they must know the future business plans of the
business, the credit ratings and score of the business needs to be positive, all the personal
details about the business must be provided and with that the financial statements disclosing
the financial stability must be provided to the lender. Apart from that the other major
significance is of the collateral security and its market value.

8. Types of security required by the lenders
There are various types of securities that may be required by the lender against the
loan that is sanctioned by the bankers. This is in the form of guarantee against the sum
provided by them that in case the repayment is not done timely then shall be confiscating the
security to recover the due amount from the auction. These are the types of securities that can
be provided to the lender:- Personal security- The personal security is a type of personal guarantee that is given
by the borrower himself or third party in the lead of pledging the tangible asset with
the banker. This guarantee is not easily provided as just the personal assurance is not
sufficient for the lender but this shall be accepted only in the case where there is high
financial solvency, social status, integrity and credibility of the party under concern
(Rath, Das and Acharya, 2021). Non-personal security- The non-personal security is one which can either be in the
form of movable or immovable property like the land, building or any other physical
commodities. They are comparatively safer than the personal securities as in case the
amount of loan is not repaid by the borrower then in that case the property can be sold
to recover the due amount.
 Collateral security- If the banker thinks that the non-personal security that has been
collected is insufficient for the recovery f the loan in that case they may demand for
the additional collateral security. This shall be helping the lender to recover the dues
smoothly in case the situation occurs.
THIRD PARTY REPORT ACTIVITY
Prepare a loan application
Ross and Melissa are a couple married for 5 years and is looking to buy their own
home After a month of searching they found a suitable apartment which meets their needs,
the purchase cost of the property is $480,000 and has also provided a deposit for the same
amounting to $60000. Ross is having a salary of $80000 and Melissa has a salary of $70000.
The couple is looking for a term loan of 25 years.
Application for loan
To, XYZ ltd
Subject: Application for home loan

Respected Sir,
It is respect fully stated that I am Ross who is living here with wide Melissa in a rented
home and is looking for buying their own home as it is difficult to live on rent and
changing homes frequently.
So, we are planning to purchase an apartment which meets with our requirement. The cost
of the property is $480,000 with a deposit of $60000. If we try to use our savings then we
will be left with nothing to meet with the uncertain future and also it is not sufficient to
meet our needs. So, we would like to request you to us loan with the monthly repayment
options for a term of 25 years along with the withdraw facility.
Please find attached all the related documents in regard to the loan application which
involves the primary documents like: Passport, Australian driver licence, Australian learner
permit and the secondary documents like: Australian birth certificate, Australian
citizenship certificate, Medicare card, ATO assessment notice (less than 12 months old)
etc.
I will be very thankful to you.
Thank You.
Ross & Melissa
Financial information
After undertaking the relevant research on the client following information is being
collected.
A
s
s
e
t
s
Details Market value
Cash at bank $15,000
Deposit paid
on property
$60,000
Motor
vehicles: 1.
2.
$15,000
$7,000
Personal effects $30,000
Business value Nil

Total assets $127,000
Liabilities
Details Monthly payments Amount owing
Credit card limit:
$2,000
$2,000 $300
Credit card limit:
$3,000
$3,000 $300
Total liabilities $600
Surplus/deficiency: $126,400
Other details provided by client: they are looking a term loan for 25 years with the proposed
settlement date of 6 weeks’ time. Ability to make additional repayment from time to time
without any penalty along with redraw facility.
Credit Provider Loans.com.au Homestar HSBC
Product Name Smart Booster Home
Loan Discounted
Variable – 1year
Star Gold Home
Loan (Principal
and Interest)
Home Value
Home Loan
(Principal and
Interest)
Interest Rate Type (%) 1.99% intro 12 months 1.79% 2.59%
Comparison Rate (%) 2.47% 1.84% 2.60%
Minimum Loan Amount
($)
$50k $250k $50k
Maximum Loan Amount
($)
$1m $850k $7.5m
Minimum Loan Term 15 years 10 Years 1 year
Maximum Loan Term 30 years 30 years 30 years
Mortgage Offset
Account
Yes Yes No
Loan Redraw Facility Yes Yes Yes
Split Loan Facility Yes Yes Yes
Fixed Interest Option No - -
In respect to the loan application being carried forward to the credit provider is basically
accompanied by the supporting documentation which helps in verifying the financial position
of the client. Therefore, following documents have been provided in case of Ross and
melissa:
 List of assets and liabilities

 Income every year
 Number of dependents
 Credit history statement
In order to effectively meet with the requirement of the client’s requirements, the above
stated various credit providers were identified with varying interest rate and other conditions.
Also, it is also advised to the clients to effectively make use of their right in respect to the
situation when the lender’s decision on an offer and non-offer (What documents are needed
for a home loan? 2018). The client is having the right to ask for the reason for rejection of
loan and can also ask for the copy of their credit report.
In addition to the above, proper mode of communication is being established which helps in
effectively communicating needs among the clients, lenders along with the other relevant
parties. All the relevant aspects have been covered which has resulted into gathering all the
relevant information accurately and also complies with the lenders guidelines and the
requirements. In addition to this, all the basic requirements of the loan has been fulfilled and
all the documentation has been done efficiently and in a confidential manner.
RESEARCH TASK AND WRITTEN/ORAL QUESTIONS
1.
The different types of forms which is needed to be completed for a loan application is a
completed guarantor or short loan application form, three form IDs like driver license,
passport, Medicare card etc. A signed and dated letter stating the credit history, The
Australian Business Number (ABN), 12 months business activity statement as per the
requirement.
2.
The loan document is witnessed by anyone above the age of 18 and not a party to the loan.
The application is being made online through the way of online portal and the signature
pertaining to the same is received in an online format with e-signature. Therefore, there is no
paper work.
3.
Two of the following original documents are required:
 Birth or citizenship certificate
 Centrelink pension card
 Medicare card

 Utilities bill (less than three months old)
 Rates notice (less than three months old)
 Tax assessment notice (less than 12 months old).
4.
The national credit code is a part of the larger reform process which introduced a licensing
regime for the lenders and brokers which also involves the responsibilities and obligations
like the responsible lending and mandatory membership of the AFCA. It mainly regulates all
the consumers lending involving new loans by non-corporate borrowers.
5.
In order to ensure financial accuracy of the clients in respect to the financial situation, it is
important for the brokers to carry out the effective risk assessment for each of the client. By
looking at the past financial statement of the client or their past debt obligations, credit score
and the level of income based upon which the decision is undertaken whether the financial
position of the client is sound or not.
6.
Depending upon the lender, there are various document which are required to be prepared for
loan application which mainly involves credit report, bank statement, budget and the future
cash flow forecasts, tax return, financial statements etc. However, the more the information,
the client can provide to the lender, more easier it becomes to get it approved.
7.
The basic requirements for loan are:
 Type of borrower (age, residency, situation)
 Type of employment (PAYG employee, self-employed)
 Financial situation (income, expenses, credit score, assets, obligations, deposits)
 Reason for loan
 Amount of borrowings
8.
The types of interest rates that can be applied to a loan are: nominal interest rate is simply the
interest rate at which interest is computed. Effective interest rate considers compounding over
the full term of the loan. The real interest rate is useful while considering the impact of
inflation over the nominal interest rates.
9.
There are seven stages of loan management which are stated below:
1. Pre-Qualification Process

2. Loan Application
3. Application Processing
4. Underwriting Process
5. Credit Decision
6. Quality Check
7. Loan Funding
10.
It is important to maximize the confidentiality of the loan application which can be done
through meeting with the broker about the same, understanding their privacy policy and the
way they hold the data of their clients. In addition to this, understanding what are the key
factors to be accounted for in the process of gathering and storing the information of the
clients. By gaining such crucial information helps in ensuring the data is secured or not.
11.
The client should be provided with the information pertaining to the loan application in
different timeframe as and when different stages are cleared. Along with the expected time
for getting the final result of the loan application and it might take a week or two.
12.
If the loan is rejected, the client is having the right to know the reason for the same. The
client should not apply incessantly which might prove harmful. By law, the client is entitled
to get a free copy of the credit report in case the loan application is rejected.
13.
In the loan and mortgage industry, a good flow of communication is very necessary which
makes a huge difference to the quality of loans processed. The lenders and the loan officers
are needed to encourage interaction with their borrowers in order to avoid any sort of
miscommunication and obstacles in the way.
14.
The additional information that might be required for loan application can be gathered
through, lawyers, accountants, tax department, immigration, past employers etc. The
information mainly involves the proof of the identity, financial situation, proof of residence
and income etc. based upon which the right information pertaining to loan can be given to
clients which meet their needs.
15.

After the loan get approved, it is important to communicate the client clearly about the loan
settlement and how the broking firm can assist them, their rights, obligations and
responsibilities along with application of loan amount.

REFERENCES
Books and Journals
Rath, G. B., Das, D. and Acharya, B., 2021. Modern Approach for Loan Sanctioning in
Banks Using Machine Learning. In Advances in Machine Learning and Computational
Intelligence(pp. 179-188). Springer, Singapore.
Saindane, M. P. and et.al., 2021. Loan Eligibility Predictor (No. 5455). EasyChair.
Sen, S. and Rajagopal, K., 2020. Design of Knowledge Base Model for Home Loan: Case
Study of a Bank in India. In Role of IT-ITES in Economic Development of Asia (pp.
271-281). Springer, Singapore.
Online
The documents you need for your home loan application. 2020. [Online]. Available through:<
https://www.anz.com.au/personal/home-loans/get-started/documents-home-loan-
application/>.
HOME LOAN APPLICATION. 2020. [Online]. Available through:<
https://www.nab.com.au/content/dam/nabrwd/documents/forms/loans/home-loan-
application-form.pdf>.
What documents are needed for a home loan? 2018. [Online]. Available through:<
https://www.canstar.com.au/home-loans/documents-needed-home-loan/>.