Case study - John Simpson
Background
John has been a self-employed carpenter for 10 years, and operates his business under a company structure.
He has approached you for help in arranging finance for a potential purchase of an investment property. He was referred to you by his accountant, who is a friend of yours. Apart from purchasing the home he currently lives in some 12 years ago, he has had no other experience in dealing with a mortgage application, though he has recently obtained finance for a new work truck via his local bank.
He has found a property he likes, and has already secured the services of a solicitor to assist with the purchase.
John currently owes $375,000 and estimates his home to be worth $650,000.
He has agreed to purchase the investment property for $300,000 and needs to borrow the full purchase price plus $20,000 to cover stamp duty, and other associated costs including a $5,000 ‘cash reserve' in case there are delays in securing a tenant for the property.
After reading the case study above, answer the questions below.
Task 1 - Establishing level of financial knowledge
What communication skills might you use to establish and confirm John's level of knowledge about credit and finance and to establish his needs?
Task 2 - Using equity
1. How is it possible for John to borrow 100% of the purchase price + costs?
2. Assuming John uses the same bank to finance his home and the investment property he wishes to purchase, what is the loan to value ratio (LVR)?
Task 3 - Self Employed special considerations
1. As John is self-employed via his company, name three (3) possible extra documents you will need to obtain and assess?
2. If a Low Doc application is an option for the customer, name three (3) extra documents you will need to obtain and assess.
3. Explain how applying for a ‘Low Doc Loan' could lead the mortgage broker to be accused of recommending an ‘unsuitable' product.
Task 4 - John's professional network
1. Name three (3) parties John may wish you to keep informed of the progress of his finance application.
2. Briefly outline to John the process that will occur from your meeting onwards.
3. Although some of these stages do not involve the mortgage broker, briefly explain why it is important to keep abreast of developments.
Task 5 - Impact of credit history
John tells you that his former wife failed to properly meet their unsecured personal loan debt obligations before they separated. Although John eventually repaid the debt he is afraid that this incident may count against him when he applies for a loan.
What would you advise John about:
1. Name two (2) of the major credit reporting agencies and advise what information these files contain?
2. Advise what procedure is involved and the associated costs to obtain a copy of your own file from each of these agencies on both an urgent and a non-urgent basis and can a free copy be obtained?
3. If there are errors on the file what is the procedure for John to follow in order to have these errors rectified?
4. What are the Lender's legal obligations if they decline an application due to the content of the credit agency file?
Task 6 - External dispute resolution
During the course of the loan process, John is starting to become upset with the time it's taking to get him an approval. Although you've explained that this is because of delays with the lenders processing system due to staff being away, you're concerned the matter may escalate beyond your control.
Explain the role of the Credit and Investment Ombudsman (CIO) in the EDR process.
Task 7 - Effective access to files
The loan application is finally approved. Loan offers have been produced by the lender, as have numerous documents that the client needs to access and review.
John's away at the moment, and his email provider has a size limit on the data that can be sent via email.
What is a potential solution for John, and name a provider that could assist?
Attachment:- Section 2 John Simpson.rar