Unformatted text preview: 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
Page 1 of 10 dee98c9d-6693-40d3-8428-f91c76c4cc8f 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 secondlargest 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 Having regard to the risks associated with second mortgages,
at a minimum, we recommend you:
make proper enquiries to determine if there is sufficient equity
available in the property to adequately protect the money
payable to you under your mortgage. As part of this, obtain
confirmation from the first mortgagee of its secured exposure;
register your mortgage over the property; and
enter into a priority agreement with the first mortgagee.
In all instances, however, you should seek appropriate legal
advice to cater to your specific circumstances. V1.0 REAA Released January 2019
Page 2 of 10 dee98c9d-6693-40d3-8428-f91c76c4cc8f 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 1. Proof of Income
2. Proof of Assets
3. Good Credit
4. Employment Verification V1.0 REAA Released January 2019
Page 3 of 10 dee98c9d-6693-40d3-8428-f91c76c4cc8f 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 Enter the property market sooner by taking out a home loan with a
Stop paying rent
Start growing equity in a home
By having LMI or LDP, you won't need to rely on a guarantor to
supply additional security to secure your home loan V1.0 REAA Released January 2019
Page 4 of 10 dee98c9d-6693-40d3-8428-f91c76c4cc8f 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 Family members can help borrowers avoid lender's mortgage
insurance and enable a lower interest rate.
Perhaps one of the most significant benefits of a Family Guarantee is
that it may allow borrowers to purchase a home without needing to
save for as large a deposit. Rather than having to save for years, you
could move into your dream home sooner. A Family Guarantee may
also help with the mitigation of lender's mortgage insurance if your
deposit doesn’t quite meet the 20% or above threshold. This
additional cost, which acts as risk protection for lenders, can be
reduced or waived for a Family Guarantee depending on the value of
the security put down by family members. Lastly, borrowers may also
be able to access lower interest rates due to the value of the security
put down. The lower overall loan-value ratio may open up a wider
range of loan products to you.
However, that isn't to say that the Family Guarantee is without
negatives. If a borrower defaults on the loan or doesn't comply with
other obligations that are part and parcel of the loan, it can create a
shortfall that may not be eliminated by the sale of the borrower's
home. In this case, it would be the duty of the guarantor to make up
There are also limitations of the Family Guarantee. While you can
choose from a wide range of IMB loans, you cannot utilise an
interest-only repayment schedule. It is principal-and-interest only.
Finally, while you can avoid the full 20% deposit requirement, there
are still some purchasing costs that the borrower may need to
contribute in order to get the process
started. You will still Released
Page 5 of
fund the deposit required by the contract for the sale of land, which
usually 10%. dee98c9d-6693-40d3-8428-f91c76c4cc8f 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 The paperwork and processes involved in selling a property are
extremely complex. Conveyancer undertake conveyancing work
following execution of a contract of sale.
Role of conveyancer
Complete and lodge all relevant documents with the Department of
Search the certificate of title
Search government departments and local authorities for anything
that may affect the property such as encumbrances or caveats
Make necessary enquiries about zoning, titles and rates (council and
Adjust rates and taxes
Liaise with the purchaser's conveyancer regarding settlement
Ensure that all special conditions in the contract are fulfilled before
settlement takes place
Liaise with fiinancial institutions regarding funds required to proceed
Prepare the settlement statement
Attend settlement on your behalf V1.0 REAA Released January 2019
Page 6 of 10 dee98c9d-6693-40d3-8428-f91c76c4cc8f Activity 6
Identify some common issues that can cause property settlement delays and ‘crashes’.
(Describe settlement issues that can occur). Activity 6 Answer 1. Bank complications
2. Final inspection problems
3. Late documentation
4. Subject sales V1.0 REAA Released January 2019
Page 7 of 10 dee98c9d-6693-40d3-8428-f91c76c4cc8f 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 is a type of home loan that allows someone to borrow money using the
equity in their home as security. The loan can be taken as a lump sum, a regular income
stream, a line of credit or a combination of these options.
From 1 March 2013, a credit provider or credit assistance provider must go through reverse
mortgage projections with a prospective borrower - in person, before they take out a reverse
mortgage, using a reverse mortgage calculator. These projections will:
→ Illustrate the effect a reverse mortgage may have on the equity in the borrower’s home
→ Show the potential impact of interest rates and house price movements
→ The borrower must be given a printed copy of these projections to take with them. V1.0 REAA Released January 2019
Page 8 of 10 dee98c9d-6693-40d3-8428-f91c76c4cc8f Activity 8
Explain the rights of a mortgagee and mortgagor when a property is mortgaged under the Torrens
(Outline the steps in the process of registering security documentation). Activity 8 Answer
Torrens Title – a system of registering land introduced in South Australia in 1858, formulated by then colonial
Premier of South Australia, Sir Robert Torrens. Since then, it has become common around the Commonwealth
of Nations and the whole world. Under the system, the Titles Office maintains a registry that is nearly final proof
of who owns a parcel of land. V1.0 REAA Released January 2019
Page 9 of 10 dee98c9d-6693-40d3-8428-f91c76c4cc8f 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
Trust Accounts: Real estate agents in Australia, like solicitors or travel agents, are required to
have a trust account when holding their client’s money. For example, the Consumer Affairs
Victoria website outlines the definition of a trust account in the following way:
‘By law, if you receive money in advance from a client, you must deposit it into a trust account
held with an authorised financial institution. This money may include a sales deposit, rent or fees
for advertising or maintenance.’
The table below, from Consumer Affairs Victoria, summarises which payments are to be
deposited in a trust account, and which should be deposited in a general business account. It’s
important that when dealing with a trust account, agents follow these simple principles:
> 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
> 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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