FNSFMB504 Report: Implementing & Managing Complex Loan Structures

This report delves into the implementation of complex loan structures, addressing relevant legislation, client situations, and security considerations. It identifies key legislation impacting complex loan structures and outlines the process for managing implementation actions, executing plans effectively, and controlling actions. The report also explains complex features encountered in client situations such as commercial loans, chattel leases, native title rights, heritage issues, and contaminated sites. Furthermore, it examines the complex nature of securities, including implications of borrowing against leased premises, multiple securities, rural land, and specialized securities like hotels. Finally, it discusses forms of security to be taken for complex loan structures, focusing on the assignment of rental income and joint and several personal or related company guarantees. Desklib offers a wide range of solved assignments and study resources for students.

Diploma of Finance and Mortgage Broking

Table of Contents
1. Relevant Legislation...........................................................................................................3
2. Complex Features of a Client Situation and Needs............................................................4
3. Complex Nature of Securities to Be Taken........................................................................6
4. Forms of Security to Be Taken For Complex Loan Structures..........................................8
Answer to Questions................................................................................................................11
Bibliography.............................................................................................................................18

1. Relevant Legislation
Identify and outline the key features of the legislation relevant to the implementation of
complex loan structures, including all relevant state and territory legislation, charges and
taxes.
For every process defined in the implementation of complex loan structure performance
standard has been established are as follows:
- Manage Implementation actions
Client’s complex situation is being analysed and reviewed for the purpose of implication
process and such process includes various components assets, taxation issues, income and
expenditure details, securities categorised in complex nature, security taken for the purpose of
complex transactions, or any other complex issues need to be considered appropriately. Each
action need to defined with respect to their time and ensure that the activities are conducted
as per the requirements of the client’s specification.
- Effective process to execute the plan
Identify each employee either internally or externally to execute the actions of the loan and
gather more and more information generated from them. Further, take the support of few
professionals such as accountants, lawyers wherever necessary to ensure that every process is
able to execute efficiently. The procedures should be reviewed and monitored on a
continuous basis so that any loopholes can be encountered accordingly.
- Control actions
Client will be given a hint what sort of actions will be taken to complete the process and
every personnel will be instructed accordingly. Also, where joint implementation is
necessary, follow-ups need to execute on a regular basis. As per the requirements, fees and
charges would be obtained from the client. Lastly, in case of any concern, the same will be
considered appropriately and actions would be taken to deal with the same.

2. Complex Features of a Client Situation and Needs
Explain each of the following types of complex features that you may encounter in a client’s
situation or needs:
a. Commercial Loans:
It’s very hard to understand the basic needs and conditions of commercial loans. Even if, a
purchaser has found the required property as per the need, but that is actually not the end, the
situation conflicts with the various natures of loans and which loans need to take up for
another level is another very critical issue. Further, it’s not necessary that every property
would get bifurcated into the list of commercial loans. The distinct character of commercial
real estate has made the situation complex, as a result of which, every situation has their
concept to reach to the conclusion. The commercial loan include Long-term fixed interest
commercial mortgage loans, Interest only payment loan, Refinance loan, hard money loan,
Bridge Loan, Construction Loan, Blanket Loan. Also, even commercial real estate loans have
different categories that include apartment buildings, office buildings, retail buildings,
medical facilities, warehouse and industrial facilities, hotels and resorts, land developments.
Apart from these every loan has their own set of terms and conditions, which makes the
decision even more complicated. Only knowledgeable and well educated person would be
able to figure out which decision would be more helpful.
b. Chattel Leases:
Although, Chattel lease is one of the smartest options to run and extend business effectively
but, even this sector also need lots of research in which, one need to understand about the
client condition especially with respect to opportunities and constraints. Whether the loan
terms and conditions highlighting something exclusive or the standards are new and hence,
every piece of details is very much essential for this ground. The complicated financial issues
need to know from every end that includes economic condition, tax perspective, insurance

laws and many others relevant areas. Identifying the level of unusual risks, which is
associated to the Lease agreement. Also, preliminary options needs to be verified
appropriately to make sure that the stated terms and conditions are complied with the relevant
laws and guidelines of the country.
c. Native title rights.
Native title rights, turns complex due to the following reasons:
- Identification of their title that signifies that such title belongs to them.
- Traditional language is one of the deciding factors so, it is very necessary that people must
know their traditional language appropriately.
- What are their responsibilities associated with the country?
- The social and cultural value of their native rights and what are the legal laws for
recognizing the same?
- What are their actual rights with respect to the land and water?
- And lastly, one needs to understand effectively the interconnection with respect to their
rights as per the applicable legal laws.
Further, there are different criteria to claim native right and hence, the criteria should be well
known to enable a person to relate the same with the current rules and regulations.
d. Heritage issues
The complexity gets added when the matter is about heritage and to maintain the same level
of quality is one of the difficult problems. Every country has distinct heritage values either in
the form of tangible or intangible entities and thereby making them special and adds value to
the country. Hence, every country wants to preserve their heritage values connected to both
geographical and cultural entities but, preserving task is not so easy, it involves various
processes to maintain the values that can be passing on from one generation to another
thereby keeping alive the basic factors such as traditions, nature, etc. Also, heritage is not

limited to only cultural part but is also extended to social and community organisations that
add the uniqueness for a specific territory thereby making each country popular in different
terms.
e. Contaminated sites or properties near noxious industries:
Now a day’s, industrialization and urbanisation are emerging at a rapid rate due to which,
environmental values are getting sacrificed and so human health is also getting hampered.
Although, the innovative idea such as Bioremediation has been developed from the latest
research, but the same has not been able to apply in the same ratio. The abundant amount of
toxic waste generated from various industries has adversely impacted the environment in a
larger scale thereby affecting everyone from the industrialization process. The most difficult
part is to create such process, which should be cost friendly along with environmental
friendly; also protect the interest of human lives and maintain the balance of ecosystem
appropriately. However, many developed countries such as UK, the USA, Canada, etc. has
formed such process to deal with the environment issues but, many developing countries such
as India need to look after this issue carefully as the same may generate harmful diseases
such as cancer. Every country should minimise the use of inorganic materials so that waste
generated from it can be reduced.
3. Complex Nature of Securities to Be Taken
a. The implications of borrowing against leased premises
The borrowing terms need to be understood carefully when it is taken against leased
premises, as the leasing can be either commercial or for residential use and hence, different
rules will apply for both the group. The nature of the lease should be clear from the initial
stage itself for what purpose it will be used and the check the agreement terms that include
tenure of the leased premises, amount payable at every year, value of the leased premises.

Further, there should be no space left for confusion when the commercial lease involves both
immovable property as well as movable property. Identify the terms with the issued
guidelines for both the group efficiently. The legal issues and non-legal issues need to
consider the applicable laws of the country.
b. Multiple securities of differing kinds
The addition of latest technology has made the situation more complicated that leads to
occurrence of more threat. Unlike previously, the current situation demand for an effective
and efficient approach to deal with the latest threat such as cyber crimes, attacks equipped
with the innovative technology, leakage of data through an advanced system, security issues
dealing with Windows Defender Advanced Threat Protection (ATP). The security should be
able to counter the malware variants through the application of Windows Defender ATP’s
antivirus that deliver protection. Also, each and every area should be abided with the high
level of security to avoid unauthorized user to access the confidential data. Critical threats are
equipped with the latest innovative technology and to avoid it completely, the security level
shouldn't get compromised.
c. Rural land
The rural land is not adequate for various land practices and farming that added complexity
with respect to the usage of the land. Generally, rural lands are dry land due to which, it is
affected from the degradation hazards, which is much harsher than the watery regions. As the
lands were dry for a long duration of time and hence, availability of groundwater is not
sufficient enough to satisfy the requirements of the crop and leads to delivery of poor
performance of crops. As the population is less in the rural areas compared from the urban
areas and hence, the calculated value of the same would also be much lesser than the value of
the urban land. Also, if the rural land is not sufficient enough to grow crops, then the value
will become even lesser and the complexity gets added to derive the correct value.

d. Specialised securities (such as hotels)
There are three ways in which hotel can be valued effectively- the income capitalization,
sales comparison, and cost process. Each process has its own way to calculate the hotel value,
but, which process needs to be adopted that deliver better results is the complex issue. The
securitisation process is one of the serious concerns that entirely depend on jurisdiction to
jurisdiction. The investigation process needs to get executed efficiently that describes the
security efficiency of the hotel, how many times a hotels had an experience in the field of
theft and crime, interviewing the high profile candidate to understand the effective functions
of the hotels. Also, scrutinise all the contracts entered by the hotels and verify whether all the
contracts are actually effective for the smooth functioning of the same or not.
4. Forms of Security to Be Taken For Complex Loan Structures
a. The assignment of rental income to the lender.
A mortgage lender lends money to the needy ones on the basis of mortgage process where
properties such as real estate, land, any other tangible or intangible form of assets are kept on
lease by the borrower to get the lump sum money that can be further used as per the
requirement. If in any case, borrower fails to pay the amount, the lender has such an authority
to disperse the property. Further, in any case borrower transfers such property to any other
person the lender would not lose the rights.
b. Joint and several personal or related company guarantees.
A guarantee, if agreed jointly that means every party of the contract is equally liable for the
borrower’s indebtedness and, if the several guarantees have been signed in between parties
that means, every party would be liable for the stated amount or percentage clearly stated in
the contract. However, generally now a days, the agreements get finalised as “joint and
several” guarantees in which every party of the contract would be equally liable as well as

personnel liable in case of borrower’s indebtedness. In this process, any partner would be
liable to pay the entire amount of damages that arises as stated in an agreement from the
unsatisfactory level of performance. The complexity arises regarding who will completely
take the burden to pay the guarantee amount in case of any uncertainty. The consequences of
the uncertainty if at all occurred and what type of risks would be generated, whether the risks
would be manageable, which areas would get kicked, what are the measures adopted to
counter the same. In few cases, all the parties would be equally responsible to pay the amount
to the lender.
c. Multiple mortgages
A mortgage-backed security (MBS) is a category of asset backed security which is secured
through one or multiple mortgages and pay regular payments likewise in coupon payments.
There are two categories in multiple mortgages- pass-through and collateralized mortgage
obligations (CMO). In pass-through, mortgage payments are collected and then accordingly,
given to the ultimate investors and the tenure of such process range between 5 to 30 years. To
form pass-through, various loans have been introduced that include adjustable rate mortgages
(ARM), Fixed Rate mortgages, etc. Collateralized mortgage obligations include several
securities pools dubbed as slices or tranches and credit rating is dependent on the tranches.
The credit rating recognises all the relevant risks and if the risk rate is low then the interest
rate would also be low.
d. Registered company charges
The registered company charges may relates to current assets or future assets of the borrower.
The borrower’s may provide various assets or tangible properties to keep in the form of
security that can be used to repay the principal amount along with the interest payment. The
interest rate may be fixed or fluctuating that depends upon the terms of the agreement.
Further, it is necessary to register all types of charges as per the applicable laws irrespective

of the place of the assets on which charge has agreed. Any type of assets that generates value
has the capability to generate the charge.
e. Second mortgages
In second mortgage, loan can be obtained against the value of home. This process gives an
opportunity to those who can take up other projects without selling of a house. Second
mortgages also called home equity lines of credit (HELOCs). In this process, home is being
taken as collateral for further use. Generally, a second mortgage loan gives lump sum money
to the borrower which can be repaid for a specific period of time.
f. The involvement of unit or family trusts as either borrowers or guarantors
If the loan is being processed on the basis of the personal guarantees, then bank need to
ensure that such person is closely related to the borrower so that in case of any wrongful act
or if borrower’s is not able to fulfil the stated conditions, then bank would have the option to
enforce third person to repay the loan amount as per the agreed and signed contract.
However, in few cases, third party claimed that they were not aware of the appropriate
contracts or the contract terms was abided with different terms at the time of signing leads to
loss for the bank. Sometimes bank sanction loans looking on the financial strength of the
borrower or guarantor and in the case of corporate advances, banks just take the director’s
personal guarantee instead of mortgaging loan on their names.

Answer to Questions
1. What are the special or complex features of client’s situation that will need to be
identified for their implementation implications?
The special or complex features of client’s situation are recognised for the purpose of
implementation implications includes various components such as elevated value of the asset,
details needed to complete the income or expenditure statement, any applicable complicated
taxation laws, any multifaceted nature of the securities that needs to be considered, or any
other security, which can be taken for complicated transactions or for any other complex
issues.
2. What information might you use to prioritise you implementation actions?
To prioritise the implication action, every action should be effectively and efficiently planned
as per the time and need to confirm whether the activities which would get executed are
complied with the requirements of the client appropriately or not.
3. What information do you need to consider when you are planning the timing for
each action in your implementation plan so that they are consistent with the needs
and specifications of the client?
To complete the implementation actions, client need to give the detail descriptions of each
and every actions, how every action would be executed, is there any another process which is
necessary to complete the action, recognise the starting and ending point of every action as it
is easy to monitor, take the written agreement of the list of implication actions that need to be
performed and lastly, efficiently make the complete effective record of the activities.
4. What information must you consider and include when you are clearly explaining to
the client the implementation actions required?
Any information which is appropriate for the execution of the implication actions need to be
considered appropriately. To obtain the clear picture of the implication plan, note down all

the basic factors which is necessary to complete the target and make the time schedule that
would be easy for monitoring purpose. Also, client’s priority is one of the most essential parts
that should be considered as it is easy to give a clear picture about the needs of the client.
5. Outline the requirements for obtaining written agreement from the client.
Ensure each action of the implication plan has properly discussed, verified and the blue prints
that relates to internal or external have been completed effectively. If the actions are
dependent on some other professionals such as lawyers, accountant, etc. ensure that the
cooperation level has been maintained effectively. Consider all the stated process has been
performed appropriately and track the time required for completion of every action.
6. Briefly discuss how timing and priority can be used throughout the implementation
of actions to maximise advantage for the client.
A detailed description would be given to the client about the action to be performed and
support is also provided as per the requirements. Every instruction would be issued to all the
employees as per the requirements of the loan.
7. What information will you need to include in a brief for identified individuals for
the implementation actions for the loan structure?
Requirements of the loan and whether the loan applied are feasible for the client. Verify the
client have enough resource to repay the loan amount at the schedule date. Verify the credit
history of the client, ascertain the policies stated in the agreement. Ascertain the size of the
loans; identify the frequency of the borrowings and whether client has a good name in terms
of repayment of the loan.