Finance Risk Management Assignment Tasks
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Section 1: Case study 1 — Ray Murdoch and Steve Brown – Commercial Equipment Finance
Task 1 — Identify the clients’ complex broking needs
Business risk can be defined as anything that may impact the financial health of a business, or that could lead to insolvency.
The risk to a business can eventuate for a variety of reasons and can come from internal or external sources. It is your responsibility (as the broker) to understand the client’s business, potential risks, their history, experience and business performance. You will also need to understand specific aspects of the transaction such as your client’s intended goals, objectives and requirements in purchasing the equipment.
Task 1: Question 1
Prepare a list of questions that you would ask Ray and Steve in order to gather information in preparation of the loan application.
Your questions for Ray and Steve should uncover:
their understanding of the risks and complex nature of purchasing this equipment (e.g. the risk that the investment may not meet the returns they are expecting)
- their understanding of the potential risks and benefits/returns associated with financing the equipment purchase
- identification of their tolerance of risk in relation to the purchase, damage to equipment during delivery, installation or operations. How would they mitigate these risks?
- if they have any specific product and/or product features they require
- if they want flexibility in the product to be able to pay it out early or be able to refinance
- if they would consider using their own properties as security to provide different lending options
- you need to uncover their understanding of their obligation for insurance and maintenance of the equipment etc.
- to understand the financial aspects of the transaction (i.e. total costs, installation, other potential premises modifications required to accommodate the machine etc.)
- the current financial position of the business.
- to ascertain if they have a taxation strategy in regards to the purchase of the equipment
- which other professionals will they will consult with and for what purpose?
- to understand and/or mitigate any other potential risks you have identified with their situation. For example, their experience, background, succession planning, business ownership issues.
Task 1: Question 2
Assess the special financial needs of Ray and Steve by developing a matrix of key product features that would address those needs, in the following table:
Student response to Task 1: Question 2
| Product name | Key product features | Client financial needs |
| Chattel mortgage | •
|
•
|
| Lease agreement | •
|
•
|
| Commercial hire purchase | •
|
•
|
Task 1: Question 3
Consider the client background information you have been provided and present a brief explanation of the most relevant key product features that appear to meet the financial needs of Ray and Steve. Highlight any risks that these product features may present.
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Task 2 — Develop complex broking options
You are required to prepare a full loan proposal addressed to Ray and Steve outlining available loan options and the application process. The proposal must also describe the potential advantages and disadvantages of the financing option that is being recommended.
In a suitable report format, you should prepare the proposal to Ray and Steve, covering the following:
1. The parties to the loan – what names will be on the loan contract?
2. Provide two (2) different product options that would meet their needs and objectives – outline the product name/type, loan term, interest rate, balloon payment (if applicable), fees and charges and monthly repayments.
3. Provide your recommendation of the best product option to meet their needs. State why the other product was not in their best interest or the best option for them.
4. Name three (3) lenders that offer the product you recommended for their transaction. Advise them about the product type, loan terms that are available, interest rate, balloon payment (if applicable), fees and charges and monthly repayments.
5. Provide a summary of the lender’s applicable fees and charges — including set up costs and ongoing fees and charges.
6. Advise which relevant disclosures need to be made covering broker remuneration.
7. Outline all security that will be required, including directors guarantees.
8. List the documentation they need to provide to obtain the funding for the machine and to obtain a loan approval.
9. Outline their responsibilities, so they fully understand their obligations regarding the security offered and the equipment during the loan term.
10. Provide details of the financial and transaction risks associated with the new loan of which they should be made aware. For example, what would happen if they could no longer service the debt?
11. They enquired about claiming back the GST that is included in the purchase price of the machine. You also feel that they may be able to utilise ‘Small Business Asset – Instant asset write-off’ benefits. In accordance with your qualification as a mortgage broker, what should you advise them to do regarding their question on claiming back GST?
12. Invite them to ask you any questions they may have about the transaction.
13. Provide an instruction for them to advise you to proceed with the application on their behalf.
Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
You are to write a loan proposal to your clients, demonstrating your professional writing skill — not simply commenting on each of the points detailed above.
Your proposal should be supported by evidence-based statements and not contain opinion-based commentary.
The use of tables in the report to set out some of the numeric information may be of benefit.
Use an Upfront commission at 0.66% and trail of 0.165% which includes GST
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Task 3 — Implement complex loan structures
Ray and Steve have accepted your recommendations and have given you authority to proceed with their application.
As part of implementing their loan application you are required to prepare a formal written loan submission to the lender for approval.
Note: Lenders have different credit policies and submission requirements which vary from lender to lender.
Your loan submission must include:
1. the details of borrower, guarantors and all contact details
2. the borrower and key personnel’s background
3. an overview of the proposal — what the finance is for – how does it benefit the business
4. a ‘funds-to-complete’ table (cost, deposit etc.) including statutory costs and any relevant fees
5. the proposed structure of the facility being recommended — product type, loan amount, term, interest rate, repayments and residual value (if any), pricing (lender fees etc.)
6. cash flow/serviceability calculations using NPAT averaged over two years. Include the current company loan repayments along with the annual interest on the company overdraft calculated at 80% of the limit
7. full details of the security/collateral that is to be provided and whether clients should seek independent legal advice
8. any relevant conditions of approval that the client must meet (if applicable)
9. a description of the relevant risks — industry, business, transactional, financial — and how they will be mitigated
10. a list of all documents that would be attached to the application
11. any other information that is relevant to assist the lender to provide an approval
12. your comments and recommendations.
Notes: Any assumptions you make should be noted, and not be in conflict with the case study information already provided.
You are to write a formal submission to the lender; not simply commenting on each of the points detailed above.
The use of tables in the report, to set out some of the numeric information, may be of benefit.
Student response to Task 3
Task 4 — Verification of applicant’s financial situation
This task requires you to describe the actions that you would take to verify the applicant’s details and financial situation.
You will need to identify the key verification tasks associated with the financial situation of both individual applicants and related business activities, based on the information set out in the case study.
Task 4: Question 1
(a) Identify and list each of the individuals and/or business entities for which you would require a credit report.
(b) Name the company that you would use to access this information and explain what you require from the client, in order to gain consent to obtain this information.
(c) Part (b) requires you to obtain appropriate consent to conduct the credit check. What legislation are you complying with by obtaining consent prior to proceeding?
(d) List the information that is provided in the credit report? (Provide six (6) items)
Task 4: Question 2
(a) What documents do you need to obtain to identify the individuals that are party to this loan?
(b) Name the Legislation that covers this requirement.
Task 4: Question 3
What sources or supporting documentation would you need to obtain in order to verify the financial information disclosed by the client?
Student response to Task 4: Question 3
After reviewing the background information and the business details of the applicant, complete the following questions:
Task 4: Question 4
Provide a summary of the impact that the new loan repayments will have on the company’s financial position after debt servicing. Assume a projected increase of 50% in net profit based on the Year 20X1 trading results.
Task 4: Question 5
Based on the background information provided in the case study and assuming an interest rate of 4.5% p.a., a brokerage fee of 2%, a residual value of 30% and a term of 5 years, calculate:
• the borrowed amount
• the brokerage fee
• monthly repayments
• total of annual repayments
• residual amount
• total of repayments over term of the loan including residual payment.
Please identify the calculator you have used and show your calculations.
Student response to Task 4: Question 5
| Total amount borrowed | |
| Monthly repayments | |
| Total annual amount of repayments | |
| Residual amount | |
| Total of repayments over the loan term (include the residual payment) | |
| Brokerage fee |
Task 4: Question 6
(a) Refer to Task 2 and list the two security instruments to be obtained to secure this transaction.
(b) Explain what the impact would be for the directors and the company should the lender call on each of the securities provided.
Student response to Task 4: Question 6
(Task 4b questions 1-6, 500 words)
Note: To complete this task you will need to refer to the Toolbox in the sections Pallets-R-Us Pty Ltd and ‘Lending organisation’s guidelines, policies and procedures, legislative requirements, loan verification and loan standards’. You may also need to conduct your own independent research to answer these questions.
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Section 2: Case Study 2 — Bill Smith and John Jones – Commercial Premises Finance
The case study is located in the subject room
Task 1 — Identify the clients’ complex broking needs
It is the broker’s responsibility to understand the client’s business, potential risks, their history, experience and business performance. You will also need to understand specific aspects of the transaction such as the client’s intended goals, objectives and requirements in purchasing the property.
1. Prepare a list of questions that you would ask Bill and John in order to gather information in preparation of the loan application for their commercial property purchase.
Your questions to Bill and John should uncover the following areas:
• the reasons behind the complex trust structure they have chosen – particularly with the shareholder involvement and their willingness to be involved in the transaction with the lender
• the benefits and risks with this property purchase
• their risk tolerance with different product types (i.e. fixed rates/interest only, term of loan etc.)
• the impact this purchase will have on the business and its financial position
• anticipated costs to fit out the new premises to suit their business needs
• the business structure/key personnel risks
• the business and industry risks (e.g. required licencing and professional indemnity).
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Task 2 — Prepare complex broking options
You are required to prepare a full report for Bill and John by outlining the application process and the risks (potential and real) of which they should be aware. This must be presented in a suitable format that would be sent to the client.
You will be required to outline to the directors the product options available to them and the process that will need to take place for them to complete the new property purchase and establish the loan.
In preparation of researching the product options, you will need to understand the client’s situation and what funds will be available between the purchase and the sale settlement as outlined in the case study.
The two (2) product options for the property purchase are as follows:
Option 1: A bridging loan with a term loan following bridging period (post sale settlement)
Option 2: A variable rate term loan (to effect the purchase in 90 days time).
In developing your report, you should cover the following:
1. Who are the parties to the loan, given the Trust involvement
2. Provide Bill and John with two (2) complex loan product options
– Option 1: Bridging loan with a term loan to follow the bridging period
– Option 2: Variable rate term loan.
3. What are your recommendations of the best loan structure option, including:
• the loan amount
• security/collateral including personal and company guarantees
• the loan term
• an explanation as to why the other option is not as suitable for the clients (include pros and cons and differences in fees and interest etc.)
4. Name three (3) lenders that offer the recommended product option required to facilitate this transaction. Advise the client of the product type, loan term, interest rate, ongoing fees and monthly repayment for each of the lenders.
5. What is the procedure to implement the loan, including the documentation Bill and John are required to provide and the security they need to provide?
6. Outline the risks of which Bill and John should be made aware. Information should cover risks associated with the selected loan products and required security, including guarantees and forms of security required in addition to property.
7. Provide the name of the borrower that will be on the loan contract. Also, what name will go on the Certificate of Title (given the Trust involvement) when it is registered with the Land Titles Office? (This varies from state to state so please advise which state you are from – refer to the Toolbox for assistance to conduct your research.)
8. Prepare a full funding description including a summary of fees and charges for the purchase of the property and also the setup costs (e.g. solicitors fees) and the lender’s fees and charges. If there is a shortfall of funds, how will this shortfall be covered?
9. The clients enquired about claiming back the GST that is included in the purchase price after settlement. In accordance with your qualification as a mortgage broker, what do you advise the clients to do regarding this question?
10. You request that the client informs you of any questions about the transaction and/or provide instructions for you to proceed.
11. Advise which relevant disclosures need to be made to the client regarding the broker remuneration.
Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
You are to write a report to clients demonstrating your professional writing skills, not simply commenting on each of the points detailed above.
The use of tables in the report to set out some of the numeric information may be of benefit.
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Task 3 — Implement complex loan structures
Bill and John have accepted your recommendations and have given you authority to proceed with their application.
As part of implementing their loan application you are required to prepare a formal written loan submission to the lender for pre-approval.
Note: Lenders have different templates, therefore, credit policies and submission requirements will vary from lender to lender.
Your loan submission must include:
• details of borrower, guarantors and their contact details
• what the business does, borrowers’ backgrounds including directors’ management ability
• an overview of the proposal — what the finance is for, the proposed structure and loan recommended, including:
– product type
– deposit amount (if required)
– loan amount
– term
– interest rate
– loan repayments.
• a funds-to-complete table, including statutory costs and any relevant fees
• debt service cover ratio (DSCR) calculations using information provided in the topic notes and the case study
• full details of the security being offered
• any proposed conditions relating to the loan (e.g. proof of sale of existing premises)
• the relevant risks. Include industry, business, transactional, economic and personal and how they can be mitigated
• any other information that is relevant to assist the lender provide an approval
• a list of the documents that you would attach in your written submission
• your comments and recommendations.
Notes: Any assumptions you make should be noted, and should not be in conflict with the case study information already provided.
You are to write a formal submission to the lender, or complete a word document template and copy and paste into the student response box.
Student response to Task 3
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Task 4 — Verification of Applicant’s Financial Situation
Commercial/business lending is less prescriptive than consumer lending, therefore the information provided to the lender may seem quite thorough to the broker, yet once the lender receives the loan application, it is likely they will seek further information and clarification.
Task 4: Question 1
(a) Identify a minimum of four (4) areas where the lender may require additional information.
(b) What financial services professionals could you engage if you were not able to answer all of the lender’s enquiries?
(c) If you needed to escalate any risks or concerns, who would you engage within your own organisation to assist?
Task 4: Question 2
In task 2 you obtained the client’s agreement to proceed with the loan application. In accordance with regulation, legislation and codes of practice, where should this information be recorded?
Hint/Tip:
In addition to the topic notes, you may find some information in the Toolbox
Task 4: Question 3
When identifying commercial borrowers and directors, legislative requirements concerning AML/CTF verifications must be met. What checks would you complete to meet these requirements and what would be two (2) possible impacts if you did not complete these checks.
Task 4: Question 4
In Task 1 you identified potential risks for Case study 2, Bill Smith and John Jones.
Choose three (3) risks that you identified and develop recommendations on risk management strategies that would help to mitigate these risks.
Task 4: Question 5
Following your review of the borrower’s financial position, compare their current and future outgoing commitments once the new loan is initially in place.
(a) What are the two (2) key impacts/changes to their cashflow?
(b) What is the change in the amount of their outgoing commitments? Demonstrate how you arrived at this figure.
Please note: you are not expected to discuss any GST or taxation implications.
Task 4: Question 6
(a) Refer to Task 3 and list at least two (2) of the security instruments to be used for this transaction.
(b) What would the impacts be for the individuals and/or companies if the lender was to call upon the securities?
Task 4: Question 7
Provide two (2) examples of any legal, financial or other issues that the client should be aware of when applying for credit in the name of a trust — for example, additional documentation that may be required, taxation issues or fees.
Hint/Tip:
Refer to the Toolbox for a helpful link about trusts.
Notes: To complete this task you will need to refer to the Toolbox and sections True Blue Pty Ltd trading as True Blue Real Estate and ‘Lending organisation’s guidelines, policies and procedures, Legislative requirements, Loan verification and audit standards’ document found in the Toolbox. You may also need to conduct your own independent research to answer these questions.
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Section 3: Case Study 3 — Rahn and Deepa Singh – Property Development Finance
The case study can be located in the Subject room
Task 1— Identify the clients’ complex broking needs
Task 1: Question 1
It is the broker’s responsibility to understand the client’s business, potential risks, their history, experience and business performance. You will also need to understand specific aspects of the transaction such as their intended goals, objectives and requirements in purchasing the property.
Prepare a list of questions that you would ask Rahn and Deepa in order to gather information in preparation of the loan application for their investment property development.
Your questions should uncover the following areas:
• their future goals, employment history, experience in project management, financial position, attitude to risks and the property purchase
• the complex features of the proposed construction financing transaction and options for 100% funding
• the identification of potential risks involved with construction loans and Rahn and Deepa ’s tolerance for risk
• the financial aspects of the transaction including, progressive payments and cost over-runs
• the financial position of the borrowers and their capacity to meet project costs
• experience in managing a construction project and whether they intend to use other building specialists or project managers
• the customers intention to undertake another project after completion
• the customer’s plans for management of the rental and sale of one unit
• if the project exceeds the projected amounts, how would they manage the extra costs.
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Task 2 — Prepare complex broking options
You are required to prepare a proposal for Rahn and Deepa outlining the loan approval process and the transaction risks they should be aware of.
Prepare the proposal document, in a suitable format, and explain the consumer loan options available to Rahn and Deepa. Outline the process that will need to take place for them to complete the purchase of the property and construction of the three units.
In developing your report, you should cover the following:
1. Who the parties to the loans are.
2. Provide Rahn and Deepa with two initial loan products that would meet their requirements.
Option 1: Residential home loan secured by the family home to provide the required equity
Option 2: Property development loan to assist with purchase of land and construction.
3. Your recommendation for the best loan structure option for each loan, including:
• amounts
• security/collateral for each loan
• terms
• repayment types
• LVRs for each loan
• explanation why each of the loans are suitable for the clients.
4. Provide Rahn and Deepa with a preliminary assessment, as required under your regulatory responsible lending obligations, outlining the three (3) lenders that provide the product required to facilitate this transaction, and advise the client of the product type, loan term, interest rate, ongoing fees and monthly repayment for each of the products.
5. Describe the procedure, from initial interview to unconditional loan approval, including documentation required from Rahn and Deepa . Ensure you mention the compliance documents you need to complete.
6. Describe the client responsibilities, so Rahn and Deepa understand the facilities being proposed.
7. Outline the risks (potential and real) of which Rahn and Deepa should be made aware of, including using their own home as security.
8. Prepare a full funding description including a summary of fees and charges for the initial purchase of the land through to completion of project. Ensure you include the costs for setup and those of the lender.
9. Prepare a time line for the project detailing payments and where funds will be obtained from.
10. A request for the client to inform you of any questions about the transaction and/or provide an instruction for you to proceed.
11. Advise which relevant disclosures need to be made regarding broker remuneration.
Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
You are to write a report to clients demonstrating your professional writing skill, not simply commenting on each of the points detailed above.
The use of tables in the report, to set out some of the numeric information, may be of benefit.
Task 2 — Prepare complex broking options
You are required to prepare a proposal for Rahn and Deepa outlining the loan approval process and the transaction risks they should be aware of.
Prepare the proposal document, in a suitable format, and explain the consumer loan options available to Rahn and Deepa. Outline the process that will need to take place for them to complete the purchase of the property and construction of the three units.
In developing your report, you should cover the following:
1. Who the parties to the loans are.
2. Provide Rahn and Deepa with two initial loan products that would meet their requirements.
Option 1: Residential home loan secured by the family home to provide the required equity
Option 2: Property development loan to assist with purchase of land and construction.
3. Your recommendation for the best loan structure option for each loan, including:
• amounts
• security/collateral for each loan
• terms
• repayment types
• LVRs for each loan
• explanation why each of the loans are suitable for the clients.
4. Provide Rahn and Deepa with a preliminary assessment, as required under your regulatory responsible lending obligations, outlining the three (3) lenders that provide the product required to facilitate this transaction, and advise the client of the product type, loan term, interest rate, ongoing fees and monthly repayment for each of the products.
5. Describe the procedure, from initial interview to unconditional loan approval, including documentation required from Rahn and Deepa . Ensure you mention the compliance documents you need to complete.
6. Describe the client responsibilities, so Rahn and Deepa understand the facilities being proposed.
7. Outline the risks (potential and real) of which Rahn and Deepa should be made aware of, including using their own home as security.
8. Prepare a full funding description including a summary of fees and charges for the initial purchase of the land through to completion of project. Ensure you include the costs for setup and those of the lender.
9. Prepare a time line for the project detailing payments and where funds will be obtained from.
10. A request for the client to inform you of any questions about the transaction and/or provide an instruction for you to proceed.
11. Advise which relevant disclosures need to be made regarding broker remuneration.
Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
You are to write a report to clients demonstrating your professional writing skill, not simply commenting on each of the points detailed above.
The use of tables in the report, to set out some of the numeric information, may be of benefit.
Task 3 — Implement complex loan structures
Rahn and Deepa have accepted your recommendations and have given you authority to proceed with their application.
As part of implementing their loan application you are required to prepare a formal written loan submission to the lender for pre-approval.
Note: Lender templates, credit policies and submission requirements vary from lender to lender. For this task, you can use the template called ‘Credit Memorandum’ (or follow the structure as a guide) and/or any of the other example tables provided in the Toolbox.
Your loan submission must include:
• details of borrower and their contact details
• borrowers’ backgrounds including ability to manage project or possible use of building expert
• an overview of the proposal — what the finance is for the proposed structure and loan recommended. Include:
– product types
– deposit amount (if required)
– loan amounts
– terms
– interest rates
– interest repayments
• full details of the security being offered
• a funds-to-complete table, include statutory costs and any relevant fees
– the loan for the two remaining units (loan amount will be 80% of the completion value)
– outline the debt servicing position
– the projected rental income
– interest only repayments
– the security and LVR position
• a highlight the relevant risks. Include transactional, economic and personal risks and how they can be mitigated
• any other information that is relevant to assist the lender provide an approval
• your comments and recommendations
• a list of the documents that you would attach in your written submission. (You can assume that you have all of the necessary approvals for the construction and have obtained a valuation).
Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
You are to write a formal submission to the lender, or complete a word document template and copy and paste into the student response box.
Task 4 — Verification of applicant’s financial situation
When a consumer loan falls under the protection of the National Consumer Credit Protection Act 2009 (NCCP Act), there are disclosure obligations that the broker must abide by.
Assume the following:
- Rahn and Deepa’s loan falls under the NCCP Act.
- You are about to provide the client with credit assistance.
- You are going to charge them a fee for your service.
Task 4: Question 1
What are the two (2) disclosure documents that you must provide to the client at the initial meeting?
Hint/Tip:
Refer to the Toolbox for a helpful link under the heading Responsible lending obligations
Task 4: Question 2
In order for you to collect and store client information and conduct a credit check, what document would you need to get signed by the client?
Task 4: Question 3
Your client has advised you that they are not sure what the term ‘cross-collateralisation’ means. Explain what cross-collateralisation means to the client.
Hint/Tip:
Refer to the topic notes
Task 4: Question 4
Given that Rahn and Deepa want to equally own the new property, claim taxation benefits and maintain ownership if one party passes away, how should they register their ownership interest on the Certificate of Title?
Hint/Tip:
Refer to the Toolbox for a helpful link
Task 4: Question 5
In Task 1 you identified risks that concern Rahn and Deepa’s property development proposal. From the list of risks you identified, choose two (2) risks and discuss the following, namely:
(a) why you feel it is a risk to the client and/or the lender
(b) if the risk was to eventuate, what could be the potential consequences for the clients and/or the lender
(c) your suggestions for how these risks can be mitigated.
Section 4: Complex Lending and Broking — Identifying, developing, presenting and implementing complex broking options
Task 1 — Complex collateral (specialised security)
Task 1: Question 1
(a) Explain what the risks are for a lender with taking rural land as security. Provide one (1) example.
(b) Explain what the risks are for the client with purchasing rural land. Provide one (1) example.
Task 1: Question 2
(a) Some properties are heritage listed. Explain what this means.
(b) Explain one (1) risk for the purchaser with buying a heritage listed property.
(c) Explain one (1) risk for the lender with taking a heritage listed property as security.
Task 1: Question 3
Describe the purpose of an Environmental Site Assessment (ESA) and explain the main steps involved in producing an ESA.
Task 1: Question 4
(a) Explain how an Indigenous Land Use Agreement (ILUA) might assist with the acquisition of land subject to native title.
(b) What is one (1) limitation of an Indigenous Land Use Agreement?
Task 1: Question 5
When borrowing against specialised security, there are often impacts such as additional loan approval processes that are required. Describe two (2) additional processes that may impact a loan application when borrowing against specialised security.
Task 2 — Complex loan structures
Task 2: Question 1
(a) List three (3) types of loan transactions that may be considered to be complex loans.
(b) Provide two (2) examples of how a client’s application with special financial circumstances (such as offering a specialised property as security or requiring a complex loan structure) might be impacted. For example, additional requirements made by the lender.
Task 2: Question 2
Explain how lending limits may be impacted for loans secured by rural property.
Hint/Tip:
Refer to your topic notes to answer this question
Task 2: Question 3
(a) Provide one (1) example of when a client may require a bridging loan.
(b) List and explain two (2) risks for the client when obtaining a bridging loan.
Hint/Tip:
In addition to the topic notes, you may be required to undertake your own research. There is a link provided in the Toolbox.
Task 2: Question 4
(a) Provide one (1) example of when a client may require an equity release product (e.g. reverse mortgage).
(b) What three (3) factors are taken into consideration when determining how much the client can access with this type of lending?
Hint/Tip:
In addition to the topic notes, you may be required to undertake your own research. There is a link provided in the Toolbox.
Task 2: Question 5
List the supporting documentation you would request from a business client that you would need to forward to the lender along with loan application. (List a minimum of four (4))
Task 2: Question 6
(a) As a broker you can assist the client and the lender with the loan implementation process. List a minimum of seven (7) steps that you (as the broker) can take to assist with the loan submission, from collection of supporting documentation through to the collection of fees and settlement or loan draw down.
(b) What steps can you take to ensure the privacy of your client’s information when sending and storing their supporting documents and loan application details?
Hint/Tip:
Refer to your topic notes for the suggested Implementation steps
Task 2: Question 7
The implementation process can take time, organisation and require follow up. This part of the process is vital for cementing the relationship with both the client and lender.
What time management tools and techniques can you use to support the implementation process to ensure it runs smoothly and is completed on time for your client and the lender? (Provide at least two (2))
Hint/Tip:
Refer to the Toolbox for a helpful link.
Task 3 — Legislation and codes of practice
Task 3: Question 1
(a) Identify the Legislation that amends the National Credit Code, which provides negative equity protection for reverse mortgage borrowers.
(b) Explain what protection is provided to those consumers.
Task 3: Question 2
Briefly describe what a finance and mortgage broker’s obligations are under best interests duty.
Hint/Tip:
Refer to the Toolbox
Task 3: Question 3
Write an email to a client outlining the complaints resolution process in accordance with the Australian Financial Complaints Authority (AFCA). (Ensure that you outline what AFCA encourages clients to do before making a complaint to them.)
Hint/Tip:
Refer to the Toolbox for a link to AFCA.
The purpose of this task is to communicate the complaints resolution process to the client. Therefore, it is important that your response is in an email format.
Section 5: Ethical decision-making frameworks and principles
Before you begin this Topic, you will be required to read the case study which is located in the subject room.
Task 1 – Frame the ethical question applicable to the situation
Task 1: Question 1
Investigate whether the assumptions and client advice provided by the broker in “Scenario A”, align with industry practice.
Task 1: Question 2
Identify the two (2) ethical principles that arise in each of the three (3) scenarios from the case study and list them in the table below.
Task 1: Question 3
The lender in Scenario A became aware of the broker’s instructions to the clients and advised the broker that his actions were not acceptable.
In their defence, the broker stated that they had, ‘heard that this was the right thing to do at a professional development day that I attended in the past’ and that ‘I confirmed this by asking other brokers who agreed with my actions’.
Identify at least two biases that are revealed in the statements made by the broker and explain how they might impact the broker’s understanding of the situation.
Task 1: Question 4
Explain what regulatory requirements may be breached if the situation in ‘Scenario B’ was not addressed?
Task 1: Question 5
Many organisations have a vision and/or mission statement and a set of values that are visible on their website to the public and their clients.
The ethical situation that arises in ‘Scenario B’ has the potential to be in conflict a lender’s purpose and values.
Identify two (2) examples where the situation in ‘Scenario B’ could be in conflict with an organisation’s strategy, purpose and/or values.
Hint/Tip:
For this task you may use Westpac’s Strategy and Purpose. A link has been provided and can be located in the Toolbox.
Task 1: Question 6
Scenario B resulted in the clients lodging a complaint with the Australian Financial Complaints Authority, (AFCA), against both the lender and the broker.
Evaluate the possible impact on the lenders’ reputation if the action of cancelling the loan became known in the public domain. Explain how the organisation at fault could be impacted.
Task 2 – Determine ethical response to the situation
Task 2: Question 1
‘Scenario A’ resulted in the client’s defaulting on their home loan 12 months after settlement as it took them several months to find new employment. Each party to the transaction claimed that they received poor advice from the broker.
Identify the key stakeholders (parties) and analyse what is at stake for each of them.
Task 2: Question 2
You have been asked to determine an ethical response to ‘Scenario B’. You are required to analyse the situation using the ‘RADAR’ ethical decision-making framework. Your response must include commentary on each aspect of this framework as follows:-
Recognising the event
Assessing the situation
Deciding what to do
Agreeing the way forward
Reporting
Hint/Tip:
The framework can be located in your Topic notes and a helpful link is also provided in the Toolbox.
Task 2: Question 3
The broker in ‘Scenario A’ was interviewed about his actions and made the following comments:
“Most of my business is settled with this particular lender and the loans manager is a personal friend of mine. There is nothing unusual about the way I handled this situation. I’m not that comfortable dealing with clients this way, but it’s the way brokers operate. I know this is true because my mentor didn’t see anything wrong by not notifying the lender”.
Identify the situational and/or psychological barriers that may have impeded the broker’s response to this ethical situation by listing a minimum of two (2) examples of conflict of interest and at least two (2) examples of where the broker’s views were biased.
Task 2: Question 4
You have been asked to determine an ethical response to ‘Scenario A’ having now heard what the broker has had to say about his actions at question 2.3 above. Name at least two (2) people or organisations you might seek guidance from as you would consider them to be ethical advisers.
Task 2: Question 5
Describe the strategies and processes you would formulate for responding to the situational and psychological barriers you identified in Question 2.3 above.
Student response to Task 2: Question 5
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Task 3 – Develop implementation plan and carry out ethical response to the situation
As the compliance manager for the lender, you have been asked to implement an ethical response to Scenario B in order to set out what conduct is expected across the broker network.
Important:
Although you will need to consider the ethical situation described in Scenario B, the focus of your response to the following questions needs to be on developing a plan to implement changes within the lender organisation and the broker network. You are required to develop an implementation plan, as follows:
Task 3: Question 1
Identify:
(a) what data needs to be gathered.
(b) which parties you will need to communicate with
(c) the sequence of the steps that you will take to complete these tasks.
Task 3: Question 2
Identify a minimum of three (3) examples of reasoning or rationalisation that may be encountered by someone speaking up on ethical issues and suggest how you would respond to those behaviours.
Task 3: Question 3
As stakeholders may be impacted by an ethical response, it is important to manage stakeholder risks and concerns that might arise during this process.
(a) Identify the four (4) steps in the stakeholder risk management process and outline the key objectives of each step in the table below.
(b) Describe the communication strategies that you would use to ensure that the risks are mitigaged and that your stakeholder’s concerns are acknowledged.
Hint/Tip:
Refer to your Topic notes.
Task 3: Question 4
(a) Under what circumstances would you seek support from a trusted colleague in order to effectively carry out the ethical response? Provide three (3) examples in the table below.
(b) Under what circumstances would you act independently in order to effectively carry out the ethical response? Provide a minimum of three (3) in the table below.
Task 4 – Evaluate the outcomes of the ethical response
Case Study:
One of Peta’s most important customers called yesterday seeking an explanation for the delay in receiving a valuation report for a loan application he had lodged last week. Peta had asked a colleague Alex to order a valuation (normally completed within five days), but it had not arrived.
When Peta asked Alex whether the valuation instructions had been issued, Alex said, “I sent them by email to the valuer a week ago”. Later, as Peta passed Alex’s desk and “woke” the laptop from the screensaver, Peta could clearly see that the email was sent just two days ago. This was typical of the poor customer service provided by the organisation due to ongoing problems with staff levels and it is not the first time Alex had been dishonest in order to cover up mistakes.
However, Peta knew that Alex’s job was at risk and decided the right thing to do was to protect her colleague by calling the client back with the news that the valuer had received the instructions but had not yet completed the valuation report. As Peta talked with the client, she learned that the delay of the valuation had resulted in the loss of the client’s opportunity to purchase the property.
Peta later heard from the manager that the client had complained and decided to not use the mortgage broking services provided by the organisation in future. Peta listened carefully when her manager later expressed his confusion on how this client’s attitude towards him had been hostile. Peta, knowing that both Alex and her own jobs were now at risk, said nothing in response.
Task 4: Question 1
(a) Identify a minimum of three (3) ethical situations/actions described in the case study.
(b) Evaluate whether the issues were resolved and if other courses of action should have been taken.
Task 4: Question 2
Determine the consequences for Peta and the other affected parties from the actions she took.
Task 4: Question 3
Analyse what the outcomes of Peta’s actions reveal about her own and the organisation’s values.
Task 4: Question 4
Identify improved approaches for responding to future ethical situations that might arise from the circumstances described in the case study.
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