Credit Representative Training
November 2016
Kristian Southern
Topics of discussion
• File Reviews
• Requirements and Objectives
• Fixed and Living Expenses
• Consistency of Information
• Personal & Car Loans
• AFG Credit Representative CPD requirements
• How to verify income documents & bank statements
File Reviews
Each file review comprises of four main sections with enquiries undertaken in the
following areas:
1) Privacy & Identification
- AFG Privacy Consent
- Identification (Photo ID document)
- Interview Process (Face to face completed?)
2)
Financial Situation
- Income evidence & verification
- Expenses (living & fixed) evidence & verification
- Financial Position verification
3)
Compliance documents
- Credit Guide
- Credit Quote
- Credit Proposal (Inc. PCA)
4)
Product suitability
- Requirements & Objectives
- Reasons why product was selected
- Does product recommended and applied for match requirements & objectives
Common Errors for each
category
Privacy & Identification
1) AFG Privacy Consent not signed
2) Photo Id documents not seen
Product suitability
1) "Requirements and Objectives" recorded in FLEX and compliance documents insufficient
2) "Reason Why Product was Selected" recorded in FLEX and compliance documents insufficient
Financial Situation
1) No evidence of inquiry, documentation or verification of living expenses
2) No evidence of inquiry, documentation or verification of fixed expenses
Compliance documents
1) Inconsistent information between compliance documents, application and / or supporting
documents
2) Compliance documents not issued OR not issued in correct order
Requirements & Objectives
1)
Make extensive inquiries into customers requirements & objectives:
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Purpose:
Amount required:
Term required: (if extending term on refinance, why is it being extended)
Product features:
Other requirements:
If refinancing ensure that customers will be better off financially following refinance.
Prioritise and explain why each requirement is requested.
Ensure any costs associated with requirements have been explained and documented.
- Interest only loans.*
- Fixed rate loans.
- Line of Credit facilities.
- Consolidating short term debt into a loan over 30 years.
2)
Record the full requirements & objectives in FLEX which will populate into your compliance
documents.
3)
Do not arrange or provide a loan that does not meet those requirements & objectives. That
is, ensure that the product your are recommending meets the customers requirement &
objectives in full.
Requirements & Objectives
Interest Only Loans
ASIC REPORT 493 September 2016
This report details a number of steps that mortgage brokers can take to improve current best
practices, including:
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Ensuring the broker understands the consumer’s underlying objectives for requesting specific
loan products or features
Recording concise summaries of the consumer’s requirements and objectives and the reason
why a particular product or feature or lender was chosen
Providing a statement that summarises the broker’s understanding of the consumer’s
requirements and objectives and asking the consumer to confirm those matters before
obtaining the loan
If the potential benefits of a loan feature might require the consumer to undertake specific
behaviour, ensuring consumers are aware of that and are aware of the potential costs if they
don’t undertake that action
Report states that “there’s definitely still room for improvement in this area”.
Requirements & Objectives
Refinances & Debt
Consolidation
ASIC REPORT 358 JULY 2013
This report details a number of area where brokers can improve, including:
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Keeping sufficient information to identify the consumer’s pre-existing credit contracts
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Keeping sufficient information on discussions held with consumer’s around the potential
significant risks and costs of debt consolidation.
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When refinancing/consolidating should you extend out the term of the loan for 30 years?
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Inadequate recording of requirements & objectives
Requirements & Objectives
Example 1
Purchase of property
Applicants wishing to purchase a residential property for owner occupation for $800,000 and
wishes to borrow $500,000 repayable over 30 years. Applicants have decided to go with a
variable rate principal and interest facility to give them the flexibility to reduce to the debt when
excess funds become available. They have also requested that we seek a competitive interest
rate and as they have signed a contract for early settlement, they seek a lender who can settle
within the timeframe of two weeks.
Requirements & Objectives
Example
2
Purchase of property
Applicant wishes to purchase a residential property for investment for $800,000 and wishes to
Borrow $640,000 repayable over 30 years. As discussed with their Accountant, and to take
advantage of the taxation benefits currently available, the applicants have requested a split facility
as follows:
Split 1: A Variable rate interest only facility for the first five years of $140,000 to enable flexibility in
reducing debt if they accumulate extra funds during this period.
Split 2: A five year fixed rate, five year interest only facility of $500,000 to provide certainty of
repayments during this period. Applicants have been advised and are fully aware of the potential
break costs if they wish to repay this fixed portion prior to expiry of the five year fixed rate period.
By selecting a five year IO facility, applicants have been advised and are fully aware of the
potential extra interest that they will pay over the full term of the loan. This has been calculated at
$40,000 as calculated using the MoneySmart* website Interest only Calculator. They are also
aware that following the expiry of the interest only period, their repayments will increase
significantly to repay the loan over the remaining 25 year period.
* www.moneysmart.gov.au >Financial calculators & apps >Mortgage calculators >Interest-only mortgage calculator
Requirements & Objectives
Example
3
Refinance / Consolidating of debt
Applicants wish to refinance their existing home loan of $300,000 with CBA and consolidate two
credit cards totaling $20,000 plus their existing car loan with Toyota for $45,000 making a total of
$365,000 over a further term of 30 years. As there are no break costs on any of these facilities,
applicants will cover all fees etc from their own savings.
The main reason for refinance/consolidation is to achieve reduced and simpler repayments.
They would like a lower interest rate, however, they are aware that due to the loan term being
extended, the total interest payable will/may be greater than that on the current loan contracts. At
this time, the lower and simpler repayments are a greater priority (= R&O prioritised).
All of the above facilities being refinanced are to be paid out and closed on settlement, including
cancellation of credit cards.
Verifying Expenses
Fixed Expenses
Fixed expenses include expenses such as ongoing credit card limits, loan facilities,
child support payments etc. To verify:
- Sight and retain a copy of the statements and/or loan contract on file to show
verification of loan repayments amounts & limits.
(This is a requirement of the NCCP regardless of funder policy)
- Ensure that the correct limits and repayments are recorded in FLEX which will in
turn ensure the correct information within your compliance documents and lender
application.
Verifying Expenses
Living Expenses
ASIC has advised that a lack of inquiry into living expenses is just not acceptable.
ASIC Report 445 states that the broker must:
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Make inquiries into borrower’s living actual expenses,
take reasonable steps to verify the information,
and document the inquiries and verification undertaken,
Justify any living expense figure used which is below lenders benchmark
The more comprehensive the list of expenditure items, the less likely that a
consumer will unintentionally understate particular individual items.
Verifying Expenses
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Obtain & document living expenses – budget calculators
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Verify & document how you have done this
– Compare applicant declared figure against a benchmark figure.
– If the applicant declared figure is lower than the benchmark, you must
make notes on file (or on the budget sheet) justifying why the
applicant has lower than average living expenses.
– If you are required to increase living expenses at application (in order
for the application to match the lender’s servicing calculator) make a
note in your comments to the lender that you have done this.
FLEX>OPPORTUNITY>QUALIFICATION - TAB 1
Consistency of information
across the file
Income used within the Credit Proposal (inc PCA) must be supported by documents
on file.
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Payslips and a second income verification document (PAYG Summary/Bank
Statement/NoA) must confirm the income figure used.
If annualising YTD or using Overtime, allowance etc, please state within the file how you
have arrived at the figure being used.
If using Tax Returns other then Net Profit figure, please make a note on how you have
arrived at the figure being used.
For rental income, always ensure that you have some form of evidence on file such as
rental statement, rental estimate etc
For all other income types, please ensure that you have documentary evidence on file.
NOTE: As part of your responsible lending obligations you must always confirm and
document your enquiries into the income you have used within the document.
If the information is correct within FLEX, there should be no need to make any changes once
you have promoted the deal to application in FLEX
Consistency of information
across the file
As previously mentioned, fixed expenses such as ongoing loan payments
etc must be verified by obtaining a copy of the statement or contract for all
ongoing facilities such as credit cards, personal & car loans, ongoing housing loan
facilities and any other fixed expense such as child maintenance payments etc.
Please ensure that you have verified these figures PRIOR to inputting the
information into FLEX. If the information is correct within FLEX, there should be no
need to make any changes once you have promoted the deal to application in
FLEX.
Consistency of information
across the file
As previously stated you must obtain and document the applicants
living
expenses.
The living expenses figure advised from the applicant is to be input into FLEX and
both the budget/breakdown figure and FLEX figure must match.
The verification process can take place within the Compliance documents by
comparing the following figures;
Consistency of information
across the file
Serviceability Assessment
Personal & Car Loans
Compliance Documents = Credit Guide, Credit Quote, Preliminary Credit
Assessment and Credit Proposal
– To be issued in the same way as you would issue them for home
loans – order of docs / timeframes etc.
– Must include Brokerage and Commission
– The AFG Privacy Consent must also be signed
Documents are manual & can be found on KnowledgeHQ:
KnowledgeHQ>Compliance>Personal & Car Loans ‘Personal Lending –
NCCP Disclosure Documents’.
AFG CR CPD Requirements
Fraudulent Income Documents
6 Tips for identifying false income documents
1. Always examine documents for spelling and mathematical errors.
2. Complete an ABN search of the customer's employer (abr.business.gov.au) using the
number on the pay slip. Cross reference this to the number on the PAYG summary.
3. Check the net amount from the pay slip is deposited into the customer's account on
the salary cycle.
4. Complete an income check on the customer. Phone the HR department and
remember that without a copy of the Privacy Act declaration that they may not be
willing to disclose information, so request the borrower provides consent to them to
provide details. Alternatively, you may be able to pose questions in a yes / no method
such as "James has advised he has been employed in a full time capacity with you
since January 2014, can you confirm this is correct?“
5. If the customer can provide a copy of their notice of assessment and full tax return,
please ask them to provide this to you. The benefit of this is that it shows not only
their income details but other information that the customer has failed to mention to
you. Tax returns will list any dependent spouse and also any children that the
customer may have "forgotten" to mention.
6. Does the pay slip conform to the requirements of Fair Work Australia?
See www.fairwork.gov.au for full details
Fraudulent Bank Statements
5 tips on how to check for false bank statements
1.
Examine documents for spelling mistakes, mismatched fonts, misaligned figures and dates in
the wrong order.
2.
If the customer has a copy of a dedicated saving account which is used for their regular
savings, always obtain a copy of the statement for their transactional account. This will
confirm the details of (a) where their pay has been deposited (b) the regular deposits into
their savings account.
3.
Transactional accounts will also show any debt repayments the customer may have. Non
disclosed debts are a red flag to a lender, so make sure that all BPAY payments to XYZ
credit card on the bank statements have been disclosed to the lender on the liabilities section
of the application.
4.
Check that any cash deposits made are at a branch that is easily accessible to the customer.
For example, if the customer is located in Adelaide, and the customer has regular cash
deposits made at a branch in Queensland, then this should raise alarm bells.
5.
If the customer has advised that they don't receive bank statements, you have the ability to
request the customer log onto their bank while with you and download and print the
statements. This will provide authentic copies and you can state to the lender that you have
verified the statements.
QUESTIONS