FNS50315 Diploma of Finance and Mortgage Broking Management

FNSFMB501 Settle applications and loan arrangements in the finance and

mortgage broking industry

Assessment 1

FNS50315_ FNSFMB501 Assessment 1 V1.0 REAA Released January 2019

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Activity 1

Some overseas borrowers are being offered the opportunity to obtain a second mortgage and
purchase an Australian property, without necessarily having a deposit. For example, the second-
largest insurance company in China offers loans to Chinese investors for Australian residential
property. The Chinese borrowers use the second mortgage as a deposit for an off the plan
apartment, with the expectation that a senior loan will later be obtained from an Australian bank to
pay the final 70% when the apartment is completed.

Explain why this is a potential financial risk for all involved.

(Explain different pre-settlement conditions required by lenders, including gaining consent of prior
mortgagee, if second mortgage security is being taken).

Activity 1 Answer
Before making any decisions, it is critical to determine whether the property has sufficient
equity and whether a second contract option is available. In most cases, obtaining the
assent of an earlier mortgage is required if second mortgage security is to be used. In this
scenario, various legal procedures on the contract may exist in China, and it is unclear
whether a moment contract, similar to that in Australia, is possible.

In spite of the fact that Chinese companies are offering the second mortgage for a deposit, it
isn't conceivable to register the second contract until the registration of the primary contract
in Australia.

The risks that buyers can face:

- Buy might risk all of his deposit in case he/she comes up short to pick up a mortgage from
an Australian bank.
- Buyers might put a chance in other property found in China as Chinese banks might
recoup the credit from other properties.
- Purchaser's other monetary circumstance isn't clear so might confront trouble getting a
70% credit in Australia.

V1.0 REAA Released January 2019

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Activity 2

Describe some ways in which potential borrowers fail to provide correct pre-settlement evidence
required by mortgage lenders.

(Describe different pre-settlement evidence required by lenders).

Activity 2 Answer
Banks require pre-settlement prove and borrowers have to give rectify prove as required by
moneylenders.

However, a few of the borrowers fall flat to supply such prove which includes:
1. Not providing ID verification documents- making 100 points
2. Fail to submit all the proper documentation on time.
3. Come up short to fulfill pre-approval conditions
4. Not filling application form or other government forms such as stamp duty form
5. Not providing proof of minimum cash deposit
6. Lack of building inspection reports or not submitting them on time.

V1.0 REAA Released January 2019

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Activity 3

What is the primary benefit of Lenders Mortgage Insurance (LMI) to a home loan applicant?

(Explain different pre-settlement undertakings by the borrower, required by lenders: sale and
settlement of other property; repayment of other debts; provision of evidence of insurance).

Activity 3 Answer
Lenders Mortgage Insurance (LMI) is a type of insurance that moneylenders purchase to
protect themselves in the event that the borrower defaults on the loan. Borrowers are
frequently compelled to take LMI if they fail to provide a cash deposit of at least 20% (in
spite of the fact that a few banks have exemptions for, first home buyers). As a result, the
bank insures them with LMI at the borrower's expense and allows them to deduct these
costs from the credit amount.

Borrower's pre-settlement efforts include:

1. Deal and settlement of other property - if the borrower is buying the property after selling
another, the bank will need the borrower to offer and settle other property for settlement.
2. Repayment of other loans - if the borrower is required to reimburse or clear other debts as
part of the pre-approval condition, it must be satisfied and cleared prior to settlement.
3. Insurance proof The borrower should get enough insurance for the property.

For a property to change hands, a settlement agent needs to:

→ Ensure any existing mortgage is paid off,
→ Ensure any caveats on the property are lifted,
→ Ensure all clauses on the Offer and Acceptance are fulfilled, and
→ Register the transaction to make the transfer official.

V1.0 REAA Released January 2019

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Activity 4

Explain some of the benefits and drawbacks of a family guarantee.

(Explain different documentation required by lender: credit check authority signed; guarantees; loan
contract; periodical payment authority; signed application form).

Activity 4 Answer
A family guarantee may be a ensure given by a family member/s to the bank as a portion of
security against an loan being taken by another family part. This type of guarantee is for the
most part offered in the event that there's a setback in-cash deposit and/or borrowing power
(ordinarily up to 20% of the property cost) and is as it were accessible to immediate family
members. Some of the benefits and disadvantages are:

Benefits:
- Youthful individuals can borrow indeed they do have not adequate reserve funds for a
deposit
- Borrower can scape LMI with a 20% cash deposit guarantee
- Able to deal way better interest rate

Disadvantages:
- As it were accessible up to 20% of the buy price
- Guarantor has obligated in case the borrower defaults on a credit payment
- Might chance other family property that offered as security

V1.0 REAA Released January 2019

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Activity 5

Explain the role of a conveyancer for a property vendor.

(Explain the role of various parties involved in the settlement process).

Activity 5 Answer
Vendor conveyancer may be an individual who sees after lawful and settlement things of the
seller and help vendor giving the right advice.

Duties of vendor's conveyancer involves:

- Making the Sale of contract of Sale incorporating section 32
- Checking all the documentations before giving to the purchaser's lawyer (such as title
document, council rates, planning permission, zoning, registered caveat etc.)
- Checking and verifying all the offer terms and conditions are correct
- Submit all the documentations to SRO on behalf of vendor
- Arranges PEXA incorporating lender's and purchaser's lawyer
- Calculate and give settlement figures to all the concerned parties
- Fix the date of settlement after liaising all other parties involved
- Go to settlement on sake of seller and give last settlement articulation after completion of
settlement

V1.0 REAA Released January 2019

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Activity 6

Identify some common issues that can cause property settlement delays and ‘crashes’.

(Describe settlement issues that can occur).

Activity 6 Answer
There may be circumstances where property settlement might delay or indeed crashes.

A few the common issues which cause delay or crashes are:

1. Vendor has not satisfied the conditions concurred within the contract of deals such as
change of the property or settling issues.
2. No reaction from vendor lender or they are not ready.
3. The vendor's solicitor couldn't yield the specified records.
4. The purchaser's lawyers couldn't yield the specified documents.
5. Buyer moneylender isn't prepared due to lack of documentation from the purchaser.
6. Not providing building reports as required by the lender.
7. Buyer credit not endorsed or last-minute changes in the credit structure.

V1.0 REAA Released January 2019

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Activity 7

Reverse mortgages now fall under the National Credit Act, which includes a statutory ‘negative
equity protection’ on all new reverse mortgage contracts (introduced September 2012). What are
the risks of reverse mortgages which make them subject to this form of legislation?

(Describe key features of current industry codes of practice, legislation and statutory requirements
including: National Credit Code; privacy legislation; credit legislation).

Activity 7 Answer
A reverse mortgage may be a mortgage that permits the costumers to borrow cash
against the value of the property he/she offering as security. The borrower can make
cash either as a knot whole, month to month, line of credit, or any combination of these.
Due to a few risks included with the reserve mortgage framework, it was included
beneath National Credit Act and is presently represented (since Sept 2012) beneath
'negative equity protection'. Under this, no reverse mortgage obligation can go past the
market worth of the property and the borrower must not be at risk to the moneylender
when the property is sold.
A few of the risks of switch mortgage which leads to recognize negative value security
incorporates;
a. As it were accessible to individuals ages 60 or above
b. Compound interest framework on loan.

V1.0 REAA Released January 2019

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Activity 8

Explain the rights of a mortgagee and mortgagor when a property is mortgaged under the Torrens
title regime.

(Outline the steps in the process of registering security documentation).

Activity 8 Answer
Torrens Title is a system of property registration in which the mortgagor has legal title to the
property and the mortgagee has a security interest in it.

Mortgagee's Rights:
1. In the event that the buyer fails to repay the loan, the mortgagee has the right to seize the
property.
2. Can sue a mortgagor if they fall behind on their payments.
3.Can sell the property and retrieve the outstanding debt if the mortgagor fails to pay.

Mortgagor's Rights:
1. Possession of the right to lease and collect rent
2. Possession and ownership rights.
3.Steps in the process of registering security documents
4.The conveyancer completes the required details, including the security type and the
secondary party. It is possible to register Online.
5. In addition to other restrictions, security will be identified and registered for the period.
6. If applicable, record guarantor details

V1.0 REAA Released January 2019

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Activity 9

Identify some of the deposits and payments of a real estate agents trust account.

(Explain relevant policies and procedures in regard to opening an account for funds to be disbursed).

Activity 9 Answer
The following are some of the deposits and payments made to a real estate agent's trust
account:
1. Tenant's security deposit is deposited in this account.
2. Rent Received - rent received on behalf of the owner is held in this account until it is
transferred to the owner's account (after commission has been deducted).
3. All Australian real estate agents should open a trust account to retain client funds relating
to property transactions, such as deposits and rent (as per directions of Consumer Affairs
Victoria).

Policies and procedures for opening a disbursement account:

→ All money must be deposited into your trust account and be tracked and reported
→ Your software transactions must match, or be `reconciled', to your bank account
transactions
→ Always be transparent when receipting and withdrawing money
→ Try not to accept cash, as this will increase your risk and will also need to be banked
manually.
→ Different states in Australia have different rules and regulations when it comes to trust
accounts, so it's best to check with your states consumer affairs website for details.

V1.0 REAA Released January 2019

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