FNSCRD301 Process Applications for Credit, Assessment 2 - Performance

This assessment involves reviewing customer loan applications, stressing loan repayments, avoiding LMI, NCCP compliance, and first home buyer assistance in Australia. The assessment is part of FNS40815 Certificate IV in FINANCE & MORTGAGE BROKING.

FNS40815 Certificate IV in FINANCE & MORTGAGE BROKING
FNSCRD301 Process applications for credit
Assessment 2 - Performance
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Assessment information
As part of your training you have been asked to review some scenarios about customer
applications for credit.
Instructions to complete this assessment
In order to complete this assessment, you are required to complete the following sections
consecutively. Details and specific instructions are provided within each section and on the
form/templates provided.
Supporting documents
To find the relevant supporting documents, please refer to the Assessment Resources folder,
located within the FNSCRD301 Process applications for credit section of your course
Review Loan Application Scenarios
Now complete each of the following steps:
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 your assessment of
the clients’ loan application.
Consider and comment on issues such as:
• maximum borrowing capacity of client
• capacity to meet deposit and total cash contribution for the loan required
• repayment requirements based on the loan required
• do they require Lenders Mortgage Insurance (LMI), and if so, how much will it cost and what are the
options to pay fee
• what loan amount would you recommend
• likelihood that the clients will be able to meet all their financial obligations
• 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) In resource section template ASS 2
must be completed as part of this assessment
Maximum borrowing capacity of client from the calculation is 480000 as the loan
required by the couple is 440000 plus LMI. There will be few deductions of the loan is
having 449177 for the duration of 30 years by the interest rate of 4.5%. he couple need
to pay 2276 after declining other expenses. 243600 is the total assets possessed by the
couple. $75,000 is the amount of the contribution which can help o borrow the amount
such as 440000+ LMI.
ment can be met. In order to comply with the specified level of amount the couple need
to look into the requirement of repaying. The crucial requirement which has been
analysed includes 30 year term loan, premium option features, LMI capitalised, need to
pay additional payment on non ability to incur expenses, etc. the specified couple so that
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proper ability to adhere the requirement can become possible. There should be much
emphasis on ascertaining that thy can effectively pay interest monthly to avoid additional
fees. It is basically related with evaluation of repaying principle & interest capacity is
available. It can be interpreted that there is enough amount of the savings and deposits
or meeting the requirement of repaying.
LMI is basically helps to safeguard the interest of lender. In the specified
course of action it can be interpreted that it become essential to evaluate the LMI before
loan providing. The loan amount which is required by the mentioned client is 515000.
The amount of the property which is expected to be purchased by Tim and Tina is
490000. On the basis of this it can be measured that h loan to value ratio of borrower is
95.15% and total premium amount 147000, deposit amount is $25000. From the
assessment of the provided calculation it can be said that if the Lenders Mortgage
insurance is higher than the 80% then the borrow pay LMI. In addition to this, the
borrower mentioned in the case study is required to pay the lenders mortgage
insurance so for securing the amount of lender. In this the premium amount which is
need to be incurred by Tim and Tina so that property can be purchased. There are
several types of option which can be taken into consideration by them such as lump sum
using upfront and h draw down.
The loan amount that is highly suitable for purchasing the mentioned property
is 515000. The main reason behind applying the such amount for the loan is to get
appropriate level e of ability to meet the current requirement (Critchfieldand et.al., 2018).
In order to purchase the property it becomes essential to pay attention on showing ability
to overcome additional charges, interest, etc. Both Tina and Time has good stability in
their life due to the possessing highly professional position which ensures cash flow of
effective income. They both have good salary scale which can give assurance to the
lender that they are enough capable of overcoming the related expenditure. On the basis
of this, it can be said that the mentioned amount of loan is recommended due to their
enough capability to meet requirements.
Likelihood of the client that it will become able to overcome occurring financial
obligation is high.The main reason behind application of such course of actions is due to
significant availability of highly reputed job. It is helpful in ensuring credibility and
trustworthiness that they can overcome their financial obligation. There are number of
financial obligation which are needed to be met. Having significant and constant amount
of cash inflows allow to understand their strong position to meet this.
There are several forms of the risks which are needed to be evaluated that can
hamper the performance of meeting financial obligations. It involves loss of job,
involvement of prioritised expenditure. There is requirement to pay attention on
assessing such risk like death or anyunforeseen circumstances which can influenced
ability to pay obligation.
It can be concluded that Tina and Tim have enough capability to overcome the
obligation. The specified that loan amount is helpful in buying property so that it can be
referred that they have significant credibility.
2 Most lenders stress test loan repayments by adding 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 Tim and Tina’s loan repayments be and do you think they would be able to cope with the
extra repayments?
A loan stressing analysis is conducted by the lender to ensure that proper ability is
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possessed by borrower to meet the financial obligation. In this case if the interest rate
inclined by 3% then also Tim and Tina will be able to overcome the obligation. The main
reason behind this is that there is enough amount of availability which can be overcome
by couple. Previously the interest is paid after deducing expenses 22050. On the other
side after increasing the rate it will be 36750 annually. By comparing this it can be said
that it is affordable.
3 Although Tim and Tina are looking to borrow at approximately 90% LVR, what other options could you
present that would avoid the cost of LMI? (100 words)
There are several options which can be taken into considerations for avoiding the
LMI. It includes having first home loan deposit scheme, leverage your employment,
keeping loan to value below 80%, taking family guarantee, etc. In addition o this, in
order to avoid this much emphasis should be provided on decreasing the ratio of LMI
so that higher chances of reducing expensescan become possible (Ziegle, Schmiedl
and Callahan, 2017). It can be avoided by having larger deposits, etc. it is as well
available to avoid LMI in the first home purchase which is highly suitable option.
4 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)
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National Consumer Credit Protection Act 2009 involves the obligation for responsible
lending and assessing credit limit by checking unsuitability (Ouazad and Kahn, 2019). It
can be helpful in achieving significant information regarding personal insights of Tim and
Tina so that accurate verification of providing loan can become possible. The objective is
to buy own home after spending 5 years in rented apartment. It requires the loan amount
for accomplishing the objective. The financial situation of the couple is good as they both
re working full time job and earning capacity is high.
The six reasonable enquiries that are essential to identify for complying with NCCP
includes consumer financial situation, objectives, requirements, contact is unsuitable,
needs analysis, preliminary position, signed copy, source of income, etc. it is highly
important for the client to comply with this requirements so that achieving ability to
conduct ethical practices can become possible (Bhutta and Keys, 2018). It crucial to
adhere the mentioned enquiries so that surety that proper safety of funds can be
obtained. This contributes in understanding that responsible credit providing transact
through assessing the crucial factors that can create risk to processing. On the basis of
this, it can be specified that the main reason is to comply with NCCP is to have
responsible consumer credit protecting transaction in order o mitigate risk.
5 Describe the First Home Owner’s Grant or home buyer assistance scheme benefits
and stamp duty concessions that are available in your State or Territory, who would be
eligible and what would be their benefit? Are Tim and Tina eligible for any assistance?
Note: Please identify which State or Territory you are from in your answer. (150 words)
In order to purchase the fist home in the Australia government initiative to support
eligible first home m buyer purchase there is e availability of home deposits scheme. In
addition to this, first home buyer can access h $10000 grant when making purchasing
regardless of property worth (Bergmann and Tran, 2018). For the first time buyer there
is concession of stamp duty up to $ 18601 terriory home-owner discount. The particular
property which is expected to be purchase by Tim and Tina is less than $ 650000 so that
stamp duty can be waived. In the mentioned case they both are from Australia itself and
living more than 12 months so can be considered to be eligible for obtaining this. On the
basis of this, it can be interpreted that first home buyer assistance can b derived by Tim
and Tina in order to make purchase decision.
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REFERENCES
Books and Journals
Bergmann, M. and Tran, M., 2018. The Distribution of Mortgage Rates. RBA Bulletin, March,
viewed. 28.
Bhutta, N. and Keys, B.J., 2018. Eyes wide shut? The moral hazard of mortgage insurers
during the housing boom (No. w24844). National Bureau of Economic Research.
Critchfield, T.,and et.al., 2018. Mortgage experiences of rural borrowers in the united states:
insights from the national survey of mortgage originations. Available at SSRN
3204477.
Ouazad, A. and Kahn, M.E., 2019. Mortgage Finance and Climate Change: Securitization
Dynamics in the Aftermath of Natural Disasters (No. w26322). National Bureau of
Economic Research.
Ziegler, C.L., Schmiedl, E. and Callahan, T., 2017. ONE Mortgage: A Model of Success for
Low-Income Homeownership. BCJL & Soc. Just.37. p.339.
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