FNSCRD401 - Short Answer Questions V1.0 F - assess credit applications
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FNSCRD401 – Assess Credit application (Release 1)
Short Answer Questions
Short Answer Questions
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FNSCRD401 – Assess Credit application (Release 1)
Short Answer Questions
What you need to do: Answer the questions below by writing in the space provided. You are required to answer all questions correctly. If correct, you will see ‘Satisfactory’ or if incorrect you will see ‘Not Satisfactory’ in your grades section of your learner portal next to the assessment name. The assessor will provide feedback and a Record of Results in the assessment task once graded. You will be required to resubmit your work for any ‘Not Satisfactory’ assessment tasks. What you will need: Use the learner material provided in your online student portal as well as research materials such as books, the internet, magazines, workplace documentation etc. to assist you in gaining the knowledge required to answer the questions. Remember that the assessment is completely self-paced and open book, so you can use whatever resources you have to answer the questions.
What you need to submit: Your completed Short Answer Questions How to Submit your Assessment:
Upload your completed document into the “FNSCRD401– Short Answer Questions” Online Assessment in your learner portal. You can drag and drop the file into the window or use the add file icon in the top left of the submission window and select the file your wish to upload by using the browse/choose file option. Click on finish attempt to submit it for grading.
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© Real Estate Academy Australia
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Version 1.0 - December 2021
FNSCRD401 – Assess Credit application (Release 1)
Short Answer Questions
Question 1
Determine two reasons why lenders do benefit from securitisation.
Liquidity Enhancement
Securitisation allows lenders to convert loans, which are typically illiquid assets,
into securities that can be sold on the open market. This process provides lenders with immediate cash flow, enhancing their liquidity.
Risk Diversification
Securitisation also allows lenders to diversify their risk. When a lender issues a loan, it assumes the risk that the borrower may default. By selling the loan as a security, the lender transfers this risk to the buyers of the security.
Question 2
Describe the following Home Loan Features:
Redraw
The redraw feature in a home loan allows borrowers to access extra repayments they have made on their mortgage.
Loan portability
Loan portability allows borrowers to transfer their existing mortgage to a new property, maintaining their Page | 3
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FNSCRD401 – Assess Credit application (Release 1)
Short Answer Questions
current loan terms and potentially saving on fees and application processes.
Repayment holiday
A repayment holiday allows borrowers to temporarily pause or reduce their home loan repayments, offering financial relief during challenging times.
Question 3
List the common supporting documentation that an applicant will be required when applying for a mortgage loan.
ID verification
Bank statements (usually 3 months)
Liability statements
Payslips or proof of income (Tax returns, BAS statements...)
Contract of sale if purchasing a property
Council Rate Notice if refinancing an existing loan.
Asset and Liability statement
Question 4
Individuals with Special Needs are protected by laws in Australia and a mortgage broker has a responsibility to ensure the client fully understand the service provided. Define special needs customers and provide examples of special needs.
An individual with special needs is defined as having a mental, emotional, or physical
disability.
Special needs can vary widely and may include, but are not limited to, the following:
1. Physical Disabilities: These are conditions that affect a person's mobility or physical capacity. Examples include individuals who use wheelchairs, have limited strength or dexterity, or have a loss of limb.
Accommodations: Ramps, automatic doors, accessible restrooms, etc.
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© Real Estate Academy Australia
RTO 32436
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FNSCRD401 – Assess Credit application (Release 1)
Short Answer Questions
2. Sensory Impairments: These are conditions that affect one or more of the
five senses. Examples include individuals who are blind, have low vision, are deaf, or have hearing loss.
Accommodations: Braille or large print materials, sign language interpreters,
etc.
3. Cognitive or Developmental Disabilities: These are conditions that affect cognitive processes and can impact learning, reasoning, problem-solving, and other mental functions. Examples include individuals with Down syndrome, autism, or dyslexia.
Accommodations: Clear and simple instructions, extra time to complete tasks, etc.
4. Mental Health Conditions: These are conditions that affect a person's thinking, feeling, behaviour, or mood. Examples include individuals with depression, anxiety disorders, or schizophrenia.
5. Accommodations: Flexible scheduling, quiet workspaces, etc.
5. Chronic Illnesses: These are long-term health conditions that may require
special care or accommodations. Examples include individuals with diabetes, heart disease, or cancer.
Accommodations: Regular breaks for rest or medication, etc.
Question 5
Describe the four main pieces of information to be gathered by a credit officer when assessing a credit application according to the organisational policy and procedures.
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FNSCRD401 – Assess Credit application (Release 1)
Short Answer Questions
1. Applicant's Personal Information
This includes the applicant's full name, address, contact information, and employment status. It's important to verify this information to ensure the applicant's identity and stability.
* Full Name
* Address
* Contact Information
* Employment Status
2. Credit History
The credit officer will need to review the applicant's credit history. This includes any previous loans, repayment history, and any instances of default or bankruptcy.
* Previous Loans
* Repayment History
* Defaults or Bankruptcy
3. Financial Information
This includes the applicant's income, expenses, assets, and liabilities. This information is used to assess the applicant's ability to repay the loan.
* Income
* Expenses
* Assets
* Liabilities
4. Loan Purpose
The purpose of the loan is also a crucial piece of information. It helps the credit officer understand why the applicant needs the loan and how likely they are to repay it.
* Purpose of the Loan
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Short Answer Questions
Question 6
Describe five forms of security over assets that could be required to minimise the risk
exposure of lenders.
Mortgage
A mortgage is a legal agreement that allows the lender to take possession of a property if the borrower fails to repay the loan. The property, usually real estate, serves as collateral for the loan.
Charge
A charge is a form of security where an asset is used as collateral for a loan, like machinery or property
, but the borrower retains possession of the asset. The lender has a legal right to take the asset if the borrower defaults.
3.
Pledge
A pledge is a form of security where the borrower gives the lender possession of an asset until the loan is repaid, such as stocks or bonds
. The lender can sell
the asset if the borrower defaults.
4.
Lien
A lien is a legal claim or right against an asset that allows the lender to seize and sell it if the borrower defaults on the loan.
This can include equipment, vehicles, or other movable property.
5.
Guarantee
A guarantee is a promise by a third party (the guarantor, often a business owner or company director), to repay the loan if the borrower defaults. The guarantor's assets serve as collateral.
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Short Answer Questions
Question 7
Describe the key features of efficient organisational credit and risk management
policies.
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FNSCRD401 – Assess Credit application (Release 1)
Short Answer Questions
1. Clear Objectives
The policy should clearly state its objectives. This could be minimising bad debts, ensuring timely payments, or maintaining a healthy cash flow.
Example:
Objective: To minimise bad debts and ensure timely collection of payments.
2. Defined Roles and Responsibilities
The policy should clearly define the roles and responsibilities of each team member involved in credit and risk management.
Example:
Role: Credit Manager
Responsibility: Assessing the creditworthiness of potential clients.
3. Credit Assessment Procedures
The policy should outline the procedures for assessing the creditworthiness of potential clients. This could include checking credit scores, financial statements, or references.
Example:
Procedure: Check the potential client's credit score and financial statements.
4. Risk Assessment and Mitigation Strategies
The policy should include strategies for identifying, assessing, and mitigating risks. This could involve regular risk assessments, contingency planning, or insurance.
Example:
Strategy: Conduct regular risk assessments and develop contingency plans.
5. Collection Procedures
The policy should outline the procedures for collecting payments. This could include sending reminders, imposing late fees, or taking legal action.
Example:
Procedure: Send a reminder 7 days before the due date, impose a late fee if payment is not received within 30 days.
6. Regular Review and Update
The policy should be regularly reviewed and updated to reflect changes in the business environment, legal requirements, or company objectives.
Example:
Review: The policy will be reviewed and updated annually.
Question 8
Identify the Australian Prudential Regulation Authority (APRA) regulation applicable November 1, 2021. What is the main purpose of this announcement? Page | 9
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From November 1, 2021, the Australian Prudential Regulation Authority (APRA) has requested banks to test borrowers to ensure they could still afford their mortgage repayments under a stressed 3% buffer added above their current interest rate. In other words, if the current interest rate is 2%, then from November 1, the banks will have to test to see if you can afford to make repayments with a 5% interest rate. As a result, the loan amount initially requested via the application would be lessened to meet any internal and external criteria the lender might have, including serviceability parameters.
Question 9
Each credit application comes with associated risks which need to be carefully assessed by the lender prior to a decision being made. List the common risks that are associated with home loan applications.
1.
Credit Risk
: This is the risk that the borrower will default on their loan payments. Lenders assess this risk by reviewing the borrower's credit history and credit score.
2.
Interest Rate Risk
: This is the risk that interest rates will rise in the future, which could increase the cost of the loan for the lender.
3.
Liquidity Risk
: This is the risk that the lender will not be able to sell the property quickly or at a high enough price to recover the loan amount if the borrower defaults.
4.
Market Risk
: This is the risk that the value of the property will decrease due to changes in the real estate market.
5.
Operational Risk
: This is the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events.
6.
Legal and Regulatory Risk
: This is the risk that the loan will not comply with relevant laws and regulations, which could result in fines or legal action against
the lender.
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Cash A/C
Bank A/C
Al Kamil Steel Product Company A/C ( Dr. Balance)
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Mar 31
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Apr 1
2,000
Apr 2
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