CIVMB LP T3-2 v3

The Lending Process
Topic 3-3: Packaging the application

to send to the lender
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Topic 3-3: Packaging the application to send to the lender
Certificate IV in Finance and Mortgage Broking
Contents
Overview ........................................................................................................ 3-3.2
Part 1: Lender application forms...................................................................... 3-3.3
Part 2: The initial loan application ................................................................... 3-3.7
1 Loan type ............................................................................................ 3-3.7
2 Loan purpose....................................................................................... 3-3.7
3 Why the loan purpose is important ...................................................... 3-3.8
4 Receiving the application ..................................................................... 3-3.8
5 The business cycle ............................................................................. 3-3.14
6 Capacity to repay ............................................................................... 3-3.16
7 Follow-up information and Veda credit score ..................................... 3-3.18
8 Using checklists ................................................................................. 3-3.18
9 Verification........................................................................................ 3-3.19
10 Credit cards and reasonable inquiries................................................. 3-3.21
11 Verification methods ......................................................................... 3-3.22
12 Original documents ........................................................................... 3-3.28
13 Maintaining information and records ................................................. 3-3.28
14 Privacy considerations ....................................................................... 3-3.31

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15 Regulation of privacy — collection, storage and use of

personal information ......................................................................... 3-3.32
16 Communicating with the borrower .................................................... 3-3.34
Suggested answers........................................................................................ 3-3.36
© Kaplan Education Pty Ltd 3-3.1

Overview
Understanding the loan application process and how to effectively manage the progress
of a loan application is an important part of a mortgage broker’s role. This will help to
meet the customer’s requirements and expectations.
It is important for mortgage brokers to understand the stages of the loan application as
well as the participants in this process. The key to effective lending is to obtain as much
relevant information and documentation as possible to support the customer’s loan
application, as this can influence the outcome of the application.
As outlined in previous topics, the loan application process can be broken down into
six component stages.
Table 1 Lending stages, activities and participants

Stage Activities Participants
Pre-credit • collect data borrower and broker/lender
• analyse data
• identify solution
• submit application
Credit • receive application lender
• verify data
• assess application against lending guidelines
• make loan decision
Post-credit • determine suitable security lender
• obtain valuation
• negotiate suitable security and conditions
• prepare and send letter of offer
(terms and conditions)
Pre-settlement • sign letter of offer and lender’s security documents borrower/solicitor/conveyancer
• organise settlement
Settlement • return all documents to lender for settlement action lender/borrower/solicitor/
• attend settlement conveyancer
Post-settlement • stamp mortgage documents lender/solicitor/conveyancer

• register mortgage
The remainder of this topic focuses on the following stages of the loan and
lending process:
• pre-credit
• credit.
Topic learning outcomes

On completing this topic, students should be able to:
• assess and evaluate applications for finance
• complete a loan application ensuring the information is accurate and meets
lender requirements
• communicate all aspects of the loan submission with the client clearly and accurately.
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Part 1: Lender application forms

Credit providers in the industry have their own loan application forms, policies and
procedures specific to their organisation. The processes may vary from being an online
process to being a manual, paper-based process, or a combination of the two.
In general, lenders give priority to loans that are lodged electronically because they
require minimal data entry by the bank receiving the application.
An enhancement to the industry in recent years has been the evolution of software that
allows the broker to submit an application to any number of lenders without having to
re-enter the information. This software is often supplied by the broker’s aggregator.
As a result, most lenders are moving to dealing only with electronic applications from
brokers because this reduces the resources the bank needs to allocate to mundane tasks
such as data entry. Having the broker enter the application data also reduces the error
rate, a common issue that delays the loan being processed and can necessitate the
reissuing of loan and other documentation when the error is detected.
Because of evolution in the industry coupled with the Australian credit licensing changes
introduced in recent years, brokers are now required to provide an industry-compliant
document commonly known as the ‘fact find’. A lender’s online application is built
from this.
In the increasingly rare occasions that a lender’s application is prepared and submitted
in hard copy format, the broker’s fact find is still used as the central information source.
This process flows as follows.
1. Information gathering:
• borrower is presented with the mortgage broker’s credit guide
• borrower is given a fact find to complete
• borrower is given a list of documents required for initial assessment of needs.
2. Preliminary assessment:
• the mortgage broker, using the information gathered above, demonstrates their
understanding of the client’s needs.
3. Credit proposal
• the mortgage broker presents their solutions to the client
• this document also outlines the mortgage broker’s external dispute resolution
procedures and numerous other Australian credit licensing requirements.
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Apply your knowledge 1: The fact find

Open the example ‘Fact find’ in your KapLearn Student Portal, under the
‘Topic 3-3’ button, and assume you are the borrower applying for a
$400,000 mortgage to assist with the purchase a property valued at
$500,000.
1. Complete the fact find in full, applying your own circumstances.
What are some of the issues you found in answering the questions?
2. As a mortgage broker, how can you assist the client to fully complete the
fact find?
Note: This activity requires independent research, therefore no suggested answers are provided.
Apply your knowledge 2: The credit guide

Open the provided ‘Credit guide’ in your KapLearn Student Portal,
under the ‘Topic 3-3’ button.
1. As a borrower, do you feel, from this document, you would have
enough confidence that the mortgage broker has systems and
procedures in place to deal with any issues that might arise during the
application process?
2. As a borrower, does this document give you confidence that the

mortgage broker is considering enough lenders’ products and services
for your application?
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Apply your knowledge 3: The preliminary assessment

Open the provided ‘Preliminary assessment’ in your KapLearn Student
Portal, under the ‘Topic 3-3’ button.
1. What documents has the mortgage broker relied on in making
the assessment?
2. What are the three (3) credit products the mortgage broker has offered
in their preliminary assessment recommendations?
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
Apply your knowledge 4: The credit proposal

Open the provided ‘Credit proposal’ in your KapLearn Student Portal,
under the ‘Topic 3-3’ button.
1. As a borrower, does this document contain enough information for you
to understand the broker’s obligations in the lending process?
2. As a borrower, do you think this document could accurately and

completely show your objectives and purpose for seeking credit?
The remainder of this subject deals with the detailed information required
to be submitted to the lender.
Part 2: The initial loan application
1 Loan type
The type of loan required will often be decided by mutual agreement between the
broker (or mortgage manager, originator etc.) and the borrower (also known as the
applicant). However, this might not be finalised until after the analysis stage of the
process.
Most organisations have restrictions on the type of loans they offer, which are
determined both through internal policy and government regulations. Other factors
affecting the type of loan offered may include:
• the purpose of the loan
• the financial capacity of the borrower
• the interest rate applicable to the product
• the type of security/collateral offered
• features of the loan that the applicant is seeking.
A further factor affecting the type of loan offered and the conditions of the loan can be
the mortgage insurance provider’s criteria. For example, a loan with a high loan to value
ratio (LVR) may have a condition attached that it have principal and interest
repayments, whereas a borrower may have been seeking an interest-only repayment.
2 Loan purpose
Loans can be made for a variety of purposes. Although lending associated with the
purchase of real estate makes up a large proportion of all lending that takes place in
Australia, there are many other forms of lending and lending products. Credit providers
will generally assess the type of loan being requested and the security/collateral
required to cover the debt, partly based on the purpose of the loan.
Establishing the loan’s purpose enables you to determine if the loan:
• is within bank’s policies, underwriting standards, guidelines and procedures
• will be regulated under the National Consumer Credit Protection Act 2009 (Cth)
(NCCP Act) — regulated loans may affect the type of loan that can be offered.
Banks will typically make loans available ‘for any worthwhile purpose’. Loan funds may
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be required for a range of personal uses, including:

• purchase of residential or investment property
• refinancing or consolidation of existing debts
• personal use (e.g. holidays, motor vehicle purchases, medical or dental costs or to
repay private loans)
• payment of a tax debt
• investment purposes, such as the purchase of shares listed on the Australian
Securities Exchange (ASX).

3 Why the loan purpose is important

An essential part of the loan application process is the applicant’s statement of loan
purpose. The statement of purpose, which the applicant must confirm and sign,
determines the legislation that will cover the loan. If the loan is for primarily business
purposes, it is not covered by the NCCP Act and the borrower will lose the protection
afforded by the NCCP Act.
If more than 50% of the loan amount is to be used for personal purposes, it will be
covered by the NCCP Act. If the applicant declares that the loan is to be used for
investment in residential property, the loan will be treated by the bank as being
regulated and covered by the NCCP Act. Home lending to company borrowers
(either joint or several) is not regulated.
Lenders will often demand evidence of what the funds will be used for. There have been
a number of high-profile cases where a borrower has accessed equity in their home to
spend on severe gambling habits. Aside from the personal tragedy of such situations,
lenders do not like their names being linked to issues of social dysfunction and so seek
to mitigate their risk by seeking clarification of a loan’s purpose.
It is important when accepting or processing a loan that the lender is satisfied that the
purpose of the loan is correctly stated and validated. If there is a dispute (e.g. arising
from loan default), the matter may be referred to an external dispute resolution service
such as the Financial Ombudsman Service (FOS). If the FOS decides that the credit
provider has not taken due care in identifying and confirming the purpose of the loan,
the loan may be set aside, which effectively means that the credit contract is invalid and
the borrower does not need to repay the loan.
The borrower, on the other hand, must take care that they receive the protection of the
NCCP Act where applicable.
4 Receiving the application

Receiving the application from an applicant is the first step in evaluating a
loan application.
Gathering as much relevant information as possible about the applicant, their financial
circumstances and needs during the initial application helps to ensure that the
application is processed as quickly as possible and that the loan provided matches the
needs of the applicant. Ensuring that the loan being applied for and offered is suitable
for the applicant is essential to meeting the requirements of the NCCP Act.
4.1 Application methods

There are different means of application from which the initial loan assessment can be
made. The application might be made:
• by mail
• over the telephone
• over the counter (face to face)
• online.
However the initial information is provided, in almost all cases the applicant must still
submit a signed application and declaration provided by the broker (the fact find)
confirming the completeness and accuracy of the information, and a privacy
authorisation from the lender to which an application is being submitted before
approval can be finalised.
Example: Loan application form

An example of a fact find and a lender’s authorisation form or mortgage
lending form is provided in your KapLearn subject room.
4.2 What information is needed for the application?

The type and extent of information required to support any loan application will vary
depending on a number of factors, including the applicant, the type and size of loan
sought, its purpose and the requirements of the bank. These will in turn have been
influenced by legal and regulatory requirements, such as the NCCP Act.
However, the information can generally be categorised as follows:
• loan information (i.e. options and loan features required)
• personal information
• business enterprise information, where applicable (e.g. self-employed borrowers)
• collateral information (including director and shareholder information).
In addition, small to medium-sized enterprises (SMEs) and company loans require:
• personal information about company directors, if applicable
• financial information, including company financial reports and information,
if applicable
• company information, including director and shareholder information.
Table 2 provides examples of these types of information.
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Table 2 Application information needed for loan applications

Category Information
Loan information • loan amount
• loan purpose (e.g. personal, business or investment)
• loan product (e.g. fixed term, principal and interest, interest-only or
line of credit)
• interest options (e.g. fixed, variable or split)
• repayment options (monthly, fortnightly or weekly)
• other options (e.g. top-up, redraw or extra repayments without penalty)
Personal information • full legal name (and maiden name if applicable)

• current address (and length of time at that address)
• previous address (and length of time at that address)
• telephone numbers
• date of birth
• driver’s licence number
• details of dependants
• name and address of closest relative
• name of solicitor/conveyancer/accountant
Employment information • job title

• name, address and telephone number of current employer
Note: Previous employer
details are usually • length of time with current employer
required where current • name, address and telephone number of previous employer
employment has been • length of time with previous employer
short term — a minimum
3-year employment • type of employment (e.g. full-time, part-time, casual or temporary)
history is expected to be • if self-employed:
supplied by the lender – details of accountant
– registered address
– trading name
– Australian Business Number (ABN) and/or Australian Company Number
(ACN) of company
– details of any trustees, if applicable
Personal financial • annual income

information • expenses, including repayments of existing loans and lines of credit
(including that of (credit cards)
company guarantors)
• credit history
• assets
• liabilities
• funds available for the transaction
• any other relevant financial information (e.g. financial statements/
tax returns if the client is self-employed)
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Category Information
Company information • company search (including ACN/ABN)
• PPSR search where applicable
• company’s financial statements (balance sheet and income statements) for
the past 2 years
• if the most recent available financials are older than 18 months, they are to
be supported by:
– interim financials prepared by a qualified accountant or
– internal management accounts supported by all business activity
statements (BAS) since the last full year’s financial statements
• in some cases, the company’s memorandum and articles of association
(after 1 July 1998 referred to as the constitution)
• trust deed, if applicable
Security/collateral • address of property

property information • market value
• type of property (e.g. house, apartment, land, commercial or industrial)
• condition of property
• unique features
• number of rooms
• type of title
• proposed use of property (e.g. as primary residence, to be let or
commercial)
• type of ownership (e.g. single, joint, company or trust ownership)
• access arrangements for valuation
• details of solicitor or conveyancer
• insurance details if property already owned or contract signed
• zoning certificate (if available — less likely for home lending)
• copy of the purchase contract (if applicable)
Other security/collateral • full details and description of the asset(s) offered as security/collateral
information
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4.3 Supporting documentation

Table 3 sets out the type of information generally required to support a loan application
by an applicant.
Table 3 Loan application documentation/information

Applicant/application Documentation required
Personal applications • satisfy know your customer (KYC) requirements
(including company guarantors)
PAYG applications One of the following to be obtained:
• two computer-generated pay slips confirming at least three months
year to date (YTD) income or annual salary (most recent available),
or
• most recent statements of account covering a minimum period of
three months, confirming regular wage/salary credits from employer
and a letter of employment on the employer’s company letterhead,
or an employment contract.
In addition, a lender would expect at least one of the following:
• most recent computer-generated group certificate, or
• most recent computer-generated tax return.
And to confirm the authenticity of the above information:
• an ATO notice of assessment.
Self-employed, sole trader, • final annual financial statements signed by the directors/partners for
partnerships, company trusts all borrowers and related entities covering a period of two
consecutive years plus the personal taxation returns for each
director/partner/guarantor and trustee for the same two years
• the supply of an ATO notice of assessment relating to the year’s tax
returns is mandatory because this allows the lender some comfort
that the tax returns being used to assess an applicant’s ability to
repay a loan are legitimate
Note: If the most recent final annual financial statements are older
than 18 months, in some instances the lender may accept accountant-
prepared interim financial statements or internal management
accounts supported by all BAS since the last full year of financial
statements.
Government pensions and Centrelink letter (no older than 90 days) or similar advice confirming
benefits the benefit or the most recent statements of account covering a
minimum period of three months confirming name of the remitter and
regular payments with the last entry within four weeks of the
application.
Applies to Family Tax Benefit A and B, age pension, disability support
pension, widow B pension and service pension.
Rental income One of the following is required:
• most recent property manager’s statement
• most recent statements of account covering a minimum period of
three months confirming regular credits from property manager
• copy of current rental tenancy agreement
• where the property has not been tenanted previously, a rental
appraisal issued by a local real estate agent may be used.
Note: For casual or holiday rentals, provide 12 months evidence.
Other investment income Personal tax returns for the past two years confirming historic income
plus investment statements confirming nature and terms of each
individual investment and that the income will continue for at least 12
months after funding.
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All consumers • bank account statements for a minimum 6-month period showing
the savings or equity input of an applicant
• loan account statements for a minimum 6-month period on any
loans the applicant currently has (e.g. personal loans)
• where a lender requires bank statements, including internet
statements, they should display:
– the applicant’s name, BSB and account numbers
– financial institution’s logo
– opening and closing balances
– individual transactions with calculated running balance
Note: Many internet statements do not display the client’s name. In
these instances, the lender will require a hard copy statement or some
other official lender documentation such as an approval letter so that
they can cross-reference the account numbers on the internet
statement with the hard copy letter’s details.
Note: Sometimes statements of account for bank facilities where the
applicant will be applying to the same bank may not be required from
the applicants, as the information can be verified from a bank’s
internal records (e.g. if the applicant has an ANZ credit card and the
loan application is submitted to ANZ, the applicant may not need to
supply a copy of the credit card statement).
New property purchase Copy of a fully completed, dated and signed contract of sale, including
applications annexures and special conditions (pro forma copy for NSW and ACT
acceptable).
Refinance/debt consolidation Loans secured by real property — most recent statements of the
applications account(s) being refinanced covering a minimum period of six months.
Unsecured loans — most recent statements of the account/s being
refinanced covering a minimum period of six months.
Credit cards/store accounts — copy of most recent statement for each
facility being refinanced.
Other purposes applications All funding purposes and amounts are to be clearly recorded on the
application and wherever possible this is to be evidenced by
supporting documentation (e.g. copy of the related contract, invoice or
quotes).
Low-document loans* • Low-doc declaration/s fully completed and signed by all applicants
(in the case of company/trust applications, declarations also
required from all guarantors). Separate declaration required for
unregulated small business low-doc loans — most lenders still
operating in this space also require a letter from the client’s
accountant confirming the client can afford the loan.
• Last 12 months BAS with the most recent statement being no older
than four months (equipment finance and small business low-doc
loans do not require BAS or working account statements).
• Documentation confirming how the funds are to be utilised.
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• Bank statements for the business working account covering the

previous six months with the most recent statement being no older
than 30 days (not applicable for unregulated small business low-doc
loans).
Note: Standard actual documentation requirements apply to any new
income (e.g. rental) generated by the proposed advance and for any
non-business income used in the servicing calculations.
Construction or improvements Copy of a fully completed and signed building contract or signed
loan applications tender plus building plans and specifications.
Note: A copy of the council-approved building plans will be required
before the first progress payment to the builder.


All home loan applications Most recent statements of account, covering a minimum period of
three months, that confirm that genuine savings and/or sufficient
funds are held to complete the transaction and that these funds have
not been borrowed elsewhere.
Gifts/inheritances/bequests LVR >80% — gift acknowledgement and declaration form signed by the
donor/contributor
and
LVR >90% — last six months rental statements are required where
these funds form part of the applicant’s 5% genuine savings.
First home owners grant (FHOG) The completed, signed and dated FHOG application (must be the
proceeds original document) plus a copy of all documents obtained to confirm
applicant’s identity/FHOG eligibility (and, where applicable, change of
name, e.g. marriage certificate) are to be received by the bank
sufficiently prior to settlement to enable validation, approval and the
processing of the application.
* The credit provider must take particular care when assessing and verifying low-doc loan applications. The provider must
ensure that their processes, procedures and guidelines provide an adequate level of verification to satisfy NCCP Act
requirements.
Keep in mind that each bank has their own unique set of policies and guidelines and
although the above list of documentation is extensive, it is by no means exhaustive.
Refer to bank policies, underwriting standards, and guidelines and procedures for each
bank’s specific requirements.
5 The business cycle

The business cycle has been discussed in Topic 1. Awareness of it gives the lender an
understanding of broader market conditions and how they affect the customer and their
borrowing. As part of assessing the loan application, it is important to understand the
customer’s business and where it fits in the phase of the business cycle.
During downturns, lenders ‘tighten credit’. Some examples of the impacts of downturns
include:
• LVRs reduce — during 2007/8, some lenders were offering investment loans of up to
106% of the value of a property. This was meant to cover the purchase price plus all
costs. The assumption was that as property prices moved higher, the LVR would
drop. In better times, lenders are more comfortable increasing LVRs because of the
situation in which some commercial lenders lend 80–85% of the value of commercial
property purchases when the norm has been 65%.
• A demand for more extensive confirmation of loan purpose and an explanation of
credit enquiries — post-GFC, most lenders increased the amount of evidence they
needed to assess and approve a loan, including obtaining confirmation of
employment. Calling an applicant’s employer to confirm their employment as stated
became common again, whereas for many years lenders relied on pay slips and
group certificates to confirm a stated employment.
• Assessment rates — one of the benefits of a downturn is that interest rates fall as
monetary policy is used to stimulate business and investment activity, and therefore
the interest rate the lenders use to ‘stress test’ whether an applicant can afford a
loan also drops. For example, the interest rate that an applicant is looking to borrow
at may be 6%, but a lender may use a rate of 8% or higher to ensure they are
comfortable the applicant can afford any increase in interest rates.
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Table 4 Characteristics of business cycle phases

Boom Contraction
• GDP peaks • GDP falls
• industrial production increases • consumer sentiment falls
• high level of employment • consumer expenditure falls
• interest rates rise to stem inflation • decreasing prices
• labour productivity falls • reducing wages
• high costs for businesses/companies • declining investment
• producer prices increase • reducing levels of employment
• business optimism peaks then starts to diminish
• investment activity begins to falter
• unfavourable international trade figures emerge
• inflation will occur if supply is not keeping up
with demand in the majority of economic sectors
Recession Recovery
• GDP flattens • GDP rises
• most industries experience excess capacity • reducing unemployment
• reduced secondary industry output • rising wages
(primary industry output may actually increase) • consumer demand/spending increases
• unemployment levels peak • increasing investment
• consumer demand falls • increasing business costs
• low profit expectations and general • rising prices
business pessimism lead to lack of
investment opportunities
• preference for high levels of liquidity
• interest rates fall
• low investment levels
• low level of overseas investment due to lack of
confidence in the economy
• a severe recession lasting at least three
consecutive years (i.e. economic activity fails to
increase) is known as a depression
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6 Capacity to repay
A bank will only lend what the borrower has the capacity, willingness and ability to
repay. This is a legal requirement enshrined in the NCCP Act.
The capacity to repay (CTR) is the calculation of the customer’s ability to pay all
expenses and commitments from their after-tax income. The customer has to
demonstrate the ability to service a loan by confirming a surplus of discretionary income
after inclusion of all permitted and validated income and deduction of all proposed and
continuing commitments and ongoing living expenses. Discretionary income refers to
the surplus or shortfall in the customer’s income position after deducting all expenses
and commitments from the customer’s net after-tax income.
The assessment of CTR will reveal whether the customer is able to meet their
commitments both at the time of application and for the remainder of the loan term.
The process will need to take into account the customer’s:
• income
• household and other general living expenses
• financial commitments (continuing and proposed).
6.1 Income
The bank’s income guidelines should be used to ensure that only reliable and ongoing
income is used for assessing CTR. The amount and source of base income used in
CTR must be confirmed by using the required primary or supplementary
documentary evidence.
Income included in CTR must comply with the bank’s credit risk policy manual and be
independently validated from documentary evidence.
6.2 Household and other general living expenses

Credit providers must obtain an estimate of all general living expenses from the
customer. The estimate must cover all financial dependants in the household.
In assessing CTR, the bank will apply the greater of the applicant’s stated expenses or
the bank’s minimum monthly general living expenses guidelines. These guidelines allow
for basic household expenses only.
6.3 Financial commitments

Lenders must take into account continuing and proposed financial commitments in the
loan application in accordance with the bank’s policy. Loan interest rates and repayment
commitments are to be sensitised over the term of the loan and in accordance with the
type of financial commitments entered into.
Credit providers must:
• make reasonable enquiries about the customer’s requirements and objectives for the
credit contract
• make reasonable enquiries about the customer’s financial situation
• take reasonable steps to verify the customer’s financial situation.
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Apply your knowledge 5: How much can I borrow?

Go to the below link:
MoneySmart n.d., Mortgage calculator, MoneySmart,
viewed 13 March 2017, <https://www.moneysmart.gov.au/tools-and-
resources/calculators-and-apps/mortgage-calculator>.
1. Enter the following numbers: $300,000 amount borrowed,
interest rate 6%, repayment frequency monthly, length of loan 30 years,
fees $10 monthly. What are your loan repayments? What would your
repayments be if the interest rate fell to 5%? What would they be if the
interest rate rose to 8%?
2. Click on the ‘How much can I borrow?’ tab under the ‘Mortgage
calculator’ heading and enter the following numbers: affordable
repayment $2,000 per month, interest rate 6%, length of loan 30 years,
fees $10 monthly.
How much can you borrow? Change the interest rate to 8%. Now how
much can you afford to borrow?
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7 Follow-up information and Veda credit score

Some loans, particularly business and corporate loans, may have another layer of
complexity in the application process because after initial analysis further information
may be required. This may mean going back to the client to obtain the information if
it has not already been supplied or made available from other sources.
After the lender has conducted their own credit report enquiries, usually via credit
reporting agency Veda, they will often have further questions they need answered.
Examples include:
• Any recent credit enquires in the last 12 months where a loan has not been declared
— the lender will normally ask if a facility applied for was taken up, and in some
instances will ask for a letter from the credit enquirer confirming a facility was not
taken up. Also note that ‘too many’ enquiries, usually more than six in a six-month
period, will often result in a loan being declined as this can be an indication of a client
in financial distress.
• Any undeclared company directorships — any company directorships will appear on
a Veda enquiry and the lender will normally request two years financials from the
applicant or a letter from an accountant stating the applicant does not have any
ongoing liability associated with the company.
• Any undeclared credit issues — this can range from the nearly-always terminal
‘default’ (i.e. most defaults will result in an application being declined by the lender,
although some smaller ones such as utility or telecom defaults that can be easily
explained may be ignored), through to company directorships where the company
may be in administration to liquidation.
As noted earlier, obtaining complete and accurate information at the time of the initial
application will help to minimise delays, although going back to the applicant for more
information is sometimes unavoidable.
8 Using checklists
If you are assessing the completeness of information supplied by a prospective
borrower, you will more than likely work with a checklist or similar tool to ensure that
you have all the information required.
Example: Actual documentation requirements checklist

An example of a bank’s actual documentation requirements checklist is
provided in your KapLearn subject room.
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9 Verification
Lending invariably involves taking calculated risks. However, all credit providers try to
limit problems and potential losses resulting from fraud or misrepresentation through
careful assessment and validation of information provided by the applicant, and they
often price their loan products according to the risk involved.
For example, a mortgage interest rate today might be 5%. This rate is offered because
the applicants have gainful employment that is proven to be able to service the debt
being applied for, plus the security being offered might be a residential property.
An applicant for a credit card might be offered 12% or higher because the verification
process for these types of loans is much less onerous than for a mortgage and there is
no security offered other than the applicant’s signature.
9.1 Due diligence in verification

Legally, credit providers must demonstrate due diligence when advancing funds.
This means taking all reasonable steps to ensure that the information provided by the
applicant is correct and that they have the CTR the loan.
Where a loan is regulated by the NCCP Act, the provider must take reasonable steps to
verify information provided and must ensure that the loan being offered is not
unsuitable for the client.
Failure to perform basic checks, or lending to a person when there is a suspicion that
they do not have the capacity to service the loan, could lead to the loan contract being
set aside by the courts.
Many financial organisations initially assess the financial viability of an application based
solely on the information provided by the applicant in their application. If lending
criteria are met at this stage, the loan is approved subject to verification of the
information and other checks, as necessary. Some providers will evaluate only the
financial aspects of an application after earlier information has been verified.
9.2 Reasonable inquiries

The Australian Securities and Investments Commission’s (ASIC’s) Regulatory Guide RG
209 ’Credit licensing: Responsible lending conduct’, sets out minimum guidelines for the
extent and types of ‘enquiries’ (relevant to consumer lending) to be made under the
NCCP Act for loans covered by the Act.
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RG 209 states that it is up to the credit provider to decide on the reasonable inquiries to
be made in order to meet responsible lending obligations for a given transaction.
However, it also states that ASIC, in considering whether reasonable inquiries have been
made, will look at whether the provider has made inquiries about the issues listed in
RG 209. These issues are either related to the borrower’s financial situation or
requirements and objectives.
Note: ASIC uses ‘borrower’ and ‘consumer’ interchangeably in RG 209.

9.3 The borrower’s financial situation

This includes:
• the borrower’s current amount and source of income or benefits, including the
nature and length of their employment
• the extent of the borrower’s fixed expenses, such as rent, repayment of existing
debts, child support and recurring expenses, such as insurance
• the borrower’s variable expenses and drivers of variable expenses, such as
dependants and any particular or unusual circumstances
• the borrower’s discretionary expenditure, such as entertainment, takeaway food,
alcohol, tobacco and gambling
• the extent to which any existing debts are to be repaid from the credit advanced
• the borrower’s credit history, including the number of small-amount credit contracts
the consumer has been a debtor under within the previous 90-day period,
and whether the consumer has defaulted on payments under those contracts
• the borrower’s circumstances, including their age, particularly where they may be
a minor, and the number of dependants they have
• the borrower’s assets, including their nature (e.g. whether they produce income
and value)
• any significant changes to the borrower’s financial circumstances that are reasonably
foreseeable, such as a change in repayments for an existing home loan due to the
ending of a ‘honeymoon’ interest rate period or changes to employment
arrangements, such as seasonal employment or impending retirement
• geographical factors, such as remoteness, which may require consideration of
specific issues, such as potentially higher living costs compared to urban areas
• indirect income sources (e.g. income from a spouse, where that income is reasonably
available to the consumer).
9.4 The borrower’s requirements and objectives

These include:
• the amount of credit needed or the maximum amount of credit sought
(e.g. the desired limit for a credit card)
• the time frame for which the credit is required
• the purpose for which the credit is sought and the benefit to the borrower
• whether the borrower is looking for particular product features or flexibility,
and understands the costs of these product features and any associated risks
• whether the borrower requires any additional expenses, such as premiums for
insurance related to the credit, to be included in the amount financed and whether
the consumer is aware of the additional costs of these expenses being financed.
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10 Credit cards and reasonable inquiries

In relation to credit cards, the Explanatory Memorandum to the NCCP Act states that
‘a credit card has no particular purpose and therefore there would be a limited
requirement to understand the consumer’s requirements and objectives in this case’.
However, ASIC states that they expect providers would still make inquiries about the
limit the consumer requires on the card, ‘as this is a key feature of the product that
relates to the consumer’s requirements and objectives’.
10.1 Scalability of reasonable inquiries and verification

obligations
ASIC considers that the obligation to make reasonable inquiries is scalable. That is,
the definition of ‘reasonable’ will vary depending on the circumstances.
Table 5 is adapted from ASIC’s RG 209 and sets out relevant factors in relation to the
scalability of enquiries.
Table 5 Relevant factors and reasonable inquiries

Relevant factor Effect on the obligations
Potential impact on the consumer More extensive enquiries are likely to be necessary where the
of entering into an unsuitable potential negative impact on the consumer is likely to be relatively
credit contract serious if the credit contract is unsuitable, for example:
• if the size of the loan is large relative to the consumer’s CTR
the loan
• where products such as reverse mortgages are involved, which
could mean the loss of a significant asset, or where provision of the
loan might affect other sources of income (e.g. Centrelink benefits)
• debt consolidation, where a comprehensive knowledge and
understanding of the client’s current financial situation is required.
Complexity of the credit contract Less extensive inquiries are likely to be necessary where the credit
contract has relatively simple terms that most consumers can easily
understand. More extensive inquiries are likely to be necessary where
the credit contract has complex terms.
Capacity of the consumer to More inquiries about the consumer’s requirements and objectives
understand the credit contract are likely to be necessary where it is evident that:
• the consumer has limited capacity to understand the credit
contract
• the consumer has conflicting objectives
• the consumer is confused about their objectives or has difficulty
articulating them
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• there is an apparent mismatch between the consumer’s objectives

and the product being considered by the consumer.
Note: It is not expected that the provider routinely evaluate the
capacity of consumers to understand the credit product. Rather, it is
expected that this factor will be taken into account if it is an issue.
Whether the consumer is an The credit provider may be able to make less extensive inquiries
existing client of a credit provider about the consumer, and take less extensive steps to verify
or a new client information, where the consumer is an existing client and the
provider already holds information about the consumer.
Source: Adapted from ASIC Regulatory Guide RG 209.

11 Verification methods
The information that is verified, and how it is verified, will differ depending on factors
such as the borrower, the purpose of the loan and, most importantly, the lending
organisation’s guidelines.
This part of the topic examines some of the information that will almost always be
needed for an application and typical methods of verification. The information
discussed includes:
• name
• address
• employment
• date of birth
• credit history
• equity.
Based on the checks made and an assessment of the client’s circumstances, a decision
can be made as to whether the proposed loan is not unsuitable for the borrower,
assuming the loan is covered by the NCCP Act.
Many organisations choose to apply the same rigour to loans that are not covered by
the NCCP Act to ensure uniformity and to protect themselves and their clients from
potential default.
11.1 Name
Regulations under the Financial Transaction Reports Act 1988 (Cth) require the
identification of people who open accounts or who seek to become signatories on
accounts. The Act makes it an offence to open or operate an account under a false
name.
In 1991, a statutory system was implemented to uniformly regulate the identification
process. This gives the financial organisation the opportunity to determine if the
applicant is who they say they are, while complying with the provisions of the Act.
Under the Financial Transaction Reports Act, certain classes of name changes are
approved for these situations, including:
• a name adopted by marriage
• a name originally held by a woman prior to adoption of the surname of her spouse or
de facto partner
• a name adopted by a person or dependent child who has been the victim of violence
or threats of violence, to ensure their personal safety
• a traditional name of an Aboriginal or Torres Strait Islander person as detailed in the
Financial Transaction Reports Act.
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Changing a name
A client who wishes to change their name must complete a signed statement witnessed
by a prescribed person as defined in the Financial Transaction Reports Act, detailing
under which category they fall and by which name they will now commonly be known.
A name change form must be accompanied by certified documentation, such as a
marriage certificate from a registry of births, deaths and marriages or a decree if
divorced.
Establishing new accounts

Existing clients who have been with an organisation for more than 12 months can
generally be identified by checks within the organisation. New clients must present
sufficient documentary evidence to confirm their identity. Documentary evidence may
include:
• passport
• driver’s licence
• credit card
• birth certificate
• deed poll
• Medicare card.
Identity checking and the AML/CTF regime

The Financial Transaction Reports Act requires banks, credit unions, building societies
and other financial organisations to adequately identify people who are signatories
to accounts.
Each signatory must show certain forms of personal identification. Previously, each form
of identification was worth a number of points, with the number of points required to
total at least 100. However, the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 (Cth) (AML/CTF Act) became law on 12 December 2006 with
implications for the mortgage lending industry.
From December 2007, credit providers must have had in place:
• new risk-based procedures for the identification of clients
• an AML/CTF program, which must specify:
– the client identification procedures adopted by the reporting entity
– the ongoing due diligence to be undertaken by the reporting entity to identify,
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mitigate and manage the risk of facilitation of money laundering or

counter-terrorism financing.
At that time, the existing 100-point check client identification was replaced with a new
risk-based approach to client identification.
Banks have policies and procedures to comply with their obligations under the AML/CTF
Act. These are based on the risk profile of the client. The risk profile may be determined
through assessment of factors such as the location of the client, with clients living
outside Australia and New Zealand being allocated a higher risk level, product type and
other characteristics.

Low- and standard-risk clients would be subject to less rigorous identity checks than
those considered higher risk.
The final parts of the AML/CTF Act commenced in December 2008 with provisions that
include the requirement that reporting entities:
• undertake ongoing due diligence
• provide reports on the following to the Australian Transaction and Reporting Analysis
Centre (AUSTRAC):
– suspicious transactions
– threshold transactions.
Further resources
Further information on how industry professionals are affected can be
found on the AUSTRAC website, viewed 13 March 2017,
<http://www.austrac.gov.au>.
11.2 Address
It may be necessary to confirm the address of an applicant, for example, due to internal
policy or to verify ownership if the address is that of the property being offered as
security. Methods of verification may include:
• checking listings in the telephone directory to verify the name, address and
telephone number provided — this may extend to calling the number for
confirmation
• sighting rate notices
• sighting the original certificate of title
• searching the land titles office records to verify ownership
• obtaining confirmation through documents such as a driver’s licence.
11.3 Employment
Verifying the applicant’s salary and employer is crucial to any lending proposal.
Most credit providers require one or more pay slips for salaried employees to enable
details to be cross-checked with information provided by the applicant.
Some issues to consider when reviewing pay slips are:
• Is the gross salary equivalent to that stated on the application?
• Does the employer deduct tax?
• Are there any bonus payments, holiday pay or overtime on the pay slip that affect
the net pay?
• Does the pay slip appear genuine? Does it show the name of the employer and is it
the most recent pay slip?
• Do the figures agree? Check YTD earnings against the stated salary.
• Are there deductions for any reason, such as loan repayments?
• Does the document bear an ACN or ABN?
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Employment details may be verified with the employer. Check the employer’s telephone
number in the telephone directory rather than using the number provided by the
applicant. Ask the employer to verify the applicant’s name, position and salary.
Obtain and make a note of the name and position of the person verifying the
information. Some credit provider guidelines require written verification from the
employer.
Self-employed and business clients

If the client is a self-employed person or a business client, dealings regarding the loan
may be conducted through an accountant. It will be necessary to obtain financial
statements and balance sheets to enable assessment of the application.
It may also be wise to ask the accountant for:
• a brief summary of the financial and trading position of the client
• copies of previous tax returns
• copies of corresponding ATO assessment notices
• confirmation that the financial statements and balance sheets have been audited
(if applicable).
Most businesses only have formal financial statements prepared at the end of the
financial year. For most businesses that is at 30 June each year. Depending on the time
of year that the loan application is made, the last financial year’s statements may or may
not be relevant. For example, an application made in April may have the previous
June’s financial statements attached. These are now 10 months old. In this case, it may
be necessary to ask for YTD or ‘interim’ financial statements to verify current income
levels.
With the much wider application of computerised accounting systems, more businesses
are able to generate YTD management accounts that may also be useful.
Financial statements received to support a loan application should be signed by the
accountant who prepared them. Verify with the accountant that they are the final
statements. If they are a draft version, find out when the final statements will be
available and if there are likely to be any material changes to the overall result and
financial position of the business entity.
11.4 Date of birth

The applicant’s date of birth should be verified before conducting a credit history
enquiry, which is dealt with in the following section. Date of birth can be obtained
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through checking some of the items previously mentioned, such as:

• birth certificate
• passport
• driver’s licence.

11.5 Credit history

An important part of the lending process is the credit history of potential borrowers.
Credit providers need to establish that a potential borrower makes repayments on time
and repays their loans. These checks can be carried out through a credit reporting
agency.
Veda is Australia’s largest credit reporting agency. It holds records on approximately
12 million individuals and more than one million businesses and companies.
The information held by Veda is regarded as extensive and generally accurate.
Until 2014, Australia currently operated on a negative credit reporting system. This
means that credit records only refer to adverse transactions, such as defaults and
bankruptcy. Under this system, unless there is behaviour such as failure to meet
repayments, satisfactory performance is assumed.
Comprehensive credit reporting commenced on 12 March 2014 under changes to the
Privacy Act 1988 (Cth). These changes include the following:
• Before March 2014, personal credit files could only hold negative information such
as credit enquiries and defaults. Since March 2014, a person’s credit history also
includes positive credit information such as on time credit card repayments.
• Additional information will be held in credit reports, including:
– credit account information, such as the type of credit account, for example a
credit card or personal loan, account open and close dates and credit limits
– monthly repayment history on credit accounts such as mortgages and
credit cards.
The information held by Veda is only available to members or to government agencies
with a right to access such information. It includes credit data such as:
• full name, date of birth, address etc.
• record of credit applications made to Veda members during the past five years
• enquiries made by credit providers in the last five years
• current loans and credit facilities
• accounts which have been in default over 60 days, and dishonoured cheques
• items of public record, such as court judgements and bankruptcies
• default reports and details of those subsequently finalised or brought up to date.
Business details of companies are also available.
The files do not contain information regarding:
• income
• assets
• political, social or religious beliefs or affiliations
• criminal record
• medical history or physical disability
• race, ethnic or national origin
• lifestyle, character or reputation.
Veda obtains much of its information about bad debts and overdue accounts from
public records such as bankruptcies and default judgements. However, it relies greatly
on reporting by its members to maintain its services. For this reason, it is a condition of
membership that defaulting accounts are reported regularly.
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Consumer credit information files held by reporting agencies are subject to the
provisions of the Privacy Act 1988 (Cth). The Act places an obligation on members to
ensure that information reported to agencies such as Veda is correct.
How credit reports are used

The applicant must consent to the provider viewing the information in a credit report.
In practice, many providers will not consider a credit application without consent from
the applicant.
The credit provider can only take into consideration information in the report that is
relevant to the application they are assessing, and they must use the information only
for assessing that application. There are limited exceptions to this requirement, such as
for the collection of overdue payments.
Credit providers are not permitted to pass on any of the information they obtain from a
credit report without the applicant’s permission.
Implications of credit reports for the applicant

The information held by credit reporting agencies has significant implications for
applicants. A poor credit history can result in credit being refused. All consumers,
especially those with little financial experience, should be made aware of the possible
consequences of defaulting on credit obligations.
If a loan is declined because of the information in a credit report, the credit provider
must tell the applicant the reason for declining the application and give the applicant
the name and address of the credit reporting agency. They must also tell the applicant
that they have the right to access the agency’s file. This requirement is provided for in
the Privacy Act.
Further resources
More information about Veda can be found on their website,
viewed 13 March 2017, <http://www.veda.com.au>.
Bank statements
Statements from a bank or other financial institution can be a valuable source to
validate a client’s credit history, especially when assessing an application to refinance an
existing loan. The statements can be used to confirm that the applicant has a history of
making regular repayments on their loan.
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11.6 Equity
Where the applicant is contributing a cash component to the loan transaction,
steps should be taken to ensure the availability of the funds to achieve settlement,
and that the source is ‘genuine’ equity. Genuine equity means that the funds have not
been borrowed from another person or business to support the loan application.
The means of authenticating funds will differ for each application and applicant,
whether individual or business. Methods of authenticating available funds include
the following:
• Inspecting savings and investment statements. Look for any large, recent deposits
and seek a satisfactory explanation.
• Obtaining a copy of the sale contract if the proceeds are from the sale of property.
Verify any amounts owing on outstanding mortgages or other loans.
• Obtaining verifying documentation if the proceeds are from the sale of assets such as
shares, motor vehicles, boats etc.
• Confirming availability of funds from statements and reports from accountants
and solicitors.
12 Original documents
With the widespread use of computers, photocopiers, scanners and other devices,
there is a risk that documents such as income statements and savings records can
be altered.
If you are verifying information that is supplied as a photocopy, scanned copy or fax,
it is strongly recommended that you sight the original documents before finalising the
loan. Alternatively, documents that have been verified as true copies by a justice of
the peace are generally acceptable. This will help to minimise the risk of a fraudulent
loan application.
13 Maintaining information and records

Maintaining accurate and up-to-date client records is important to any business
operation. With increasing regulation, the need to maintain accurate records is even
more important, although it is not currently a compliance requirement.
As a guide, and depending on any compliance requirements in your state, you must
keep records of:
• relevant conversations with the client, including the client’s specific needs and wants
• information on which recommendations or changes to the client’s initial
requirements have been based
• recommendations and proposals
• client’s authorisation to proceed.
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Apply your knowledge 6: Verifying information

As noted previously, different organisations may have different ways of
verifying information provided by their clients.
The information to be verified and the degree of verification required may
also vary depending on the type of loan.
1. List the key items requiring verification.
Note: You can access ‘Suggested answers’ for this question at the end of this topic.
2. Explain when these items must be verified (e.g. for every new
application, or for every new application over $50,000).
3. Explain how verification for each item occurs.

Item When verification is needed How verification occurs
Name
Address
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Employment
Date of birth
Credit history
Equity
Other items
Note: Question 2 & 3 require independent research, therefore no suggested answers are provided.

Apply your knowledge 7: Documentation

Dave Jones, a self-employed plumber, is looking to expand his business and
needs extra funds to buy some new work vans and update plumbing
equipment that no longer functions efficiently.
Dave is seeking to borrow $60,000 to fund these purchases and submits a
loan application.
Dave operates as a sole trader and has done so for the past 15 years.
Dave has previously borrowed money from his bank and has repaid all loans
on time.
1. Explain the circumstances in which these items must be verified
(e.g. for every new application, or for every new application over
$50,000).
2. List any other information you might require.
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14 Privacy considerations
The Privacy Act restricts access to clients’ personal information and prevents you from
disclosing any of their information to third parties.
In order to do your job and provide the service that your clients expect, you will need to
obtain their authorisation to gather information, such as when you conduct a credit
reference check. You will also need authorisation to pass on information about them to
other individuals or departments within the bank, or organisations external to the bank.
This situation must be clearly explained to the client and their approval gained. This is
usually by way of a signed authorisation form or, for online applications, by the
applicant ticking a box to confirm that they have read a policy statement and consent to
the release or exchange of relevant information. The consent must be agreed to by all
parties to the loan and must usually be obtained before processing the application.
Exchanging or disclosing information about an applicant without their authority could
lead to action being taken against you and the bank under the Privacy Act.
Apply your knowledge 8: Obtaining privacy consent

Describe the policies, processes and procedures your organisation uses in
the following circumstances.
1. To obtain privacy consent from applicants, list the key points of the
policy (e.g. when information may be exchanged or released).
2. Methods of obtaining consent (e.g. signed form, online check box or

verbal consent).
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15 Regulation of privacy — collection,

storage and use of personal information
15.1 The Privacy Act

The Privacy Act was introduced to prevent unwarranted gathering, processing and
dissemination of personal information about individuals. All dealings with personal
information, including obtaining, using, storing, accessing and altering data, as well as
credit reporting, are regulated by the Privacy Act.
Collection of personal information must be lawful, that is, it must comply with the
Privacy Act. This is achieved by ensuring that the Privacy Act and general consent
statement on the loan application form is properly completed and that the names and
signatures of all parties to the loan are included and dated.
15.2 Privacy Amendment (Enhancing Privacy Protection)

Act 2012
The Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth)
(Privacy Amendment Act) introduced significant reforms to the Privacy Act to strengthen
privacy protection. These changes commenced on 12 March 2014. The reforms:
• create a single set of Australian Privacy Principles (APPs) applying to both
Australian Government agencies and the private sector. These principles replaced the
Information Privacy Principles and National Privacy Principles and set out the
standards, rights and obligations for collecting, handling, holding, accessing, using,
disclosing and correcting personal information
• introduce more comprehensive credit reporting for consumer credit, improved
privacy protections and more logical, consistent and simple language
• strengthen the functions and powers of the Australian Information Commissioner to
resolve complaints, use external dispute resolution services, conduct investigations
and promote compliance
• create new provisions on privacy codes and the credit reporting code,
including codes that are binding on specified agencies and organisations.
Credit reference checks

All financial institutions conduct background checks covering prospective
applicants’ credit history and creditworthiness. These checks are required in accordance
with the guidelines for credit providers and intermediaries set out in the Privacy Act.
These guidelines include the following requirements:
• Credit providers must obtain specific consent from applicants before obtaining credit
references for investigation or collection purposes.
• There is restriction on access to credit history information about applicants held by
credit reporting agencies such as Veda Advantage (formerly Baycorp Advantage) and
by credit providers, and on its use by intermediaries in certain circumstances such as
the collection of overdue payments.
• There is specification on the length of time different types of credit information may
remain on an individual’s credit report.
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A credit report is defined as:

• any record or information, whether written or oral, that is being or has been
prepared by a credit reporting agency
• a report which has any bearing on the individual’s eligibility to be provided with
credit, or history in relation to credit or capacity to meet repayments
• a report where the information is used, has been used, or has the capacity to be
used for the purpose of serving as a factor in establishing an individual’s eligibility
for credit.
Apply your knowledge 9: Lenders’ credit policy

Conduct an internet search for ‘privacy policy’ and choose a few banks to
review. For example, if you want to view Westpac Bank’s privacy policy,
search for ‘privacy policy Westpac’.
1. What are some of the reasons quoted in response to ‘Why do we collect,
hold, use and disclose personal information?’
2. Who do they say they may disclose this information to?
3. Will the lender use the information for marketing purposes?

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16 Communicating with the borrower

The loan purpose will help you determine the frequency and timing of contact with
a borrower.
1. A property purchase — if the borrower has found a property they want to purchase,
there is a certain urgency required for the process. For example:
• Once an offer on a property has been made and accepted, there is timing
pressure on the borrower to put down their own funds to secure it. This is
referred to as ‘exchanging contracts’ and, depending on which state the property
is buying in, these funds can be at risk.
• A prudent borrower, usually following the guidance and advice of their solicitor or
conveyancer, will not exchange contracts until their finance is approved by the
chosen lender.
• The time frame between agreeing on a price for a property and the requirement
to exchange contracts and pay a deposit can be as narrow as the same day
(in the case of auctions) or as long as four weeks (where a finance clause is
inserted in a contract allowing the borrower to withdraw from the agreed sale
if their finance is not approved). This is common in Queensland but not in NSW.
• This stage of the process can therefore be extremely stressful for the borrower,
and it is crucial that you maintain regular communication with them.
Communicating to the borrower that an application has been submitted to the
chosen lender, checking that they have received the application and obtaining a
realistic time frame for approval, then communicating this to both the borrower
and their legal representative is an important part of your role in the process.
• To manage possible miscommunication, it is recommended that both a phone call
and a written notification be sent to the borrower and their legal representative
when advising of time frames. Do not assume the client understands the process
or the terminology used. For example, calling a client and advising that their loan
has been ‘conditionally approved’ by a lender may result in the borrower
proceeding with an exchange of contracts and payment of a deposit, when the
‘conditions’ referred to in your call may cause an application to be declined at a
later stage.
2. A refinance — there is generally much less pressure on a refinance application.
The borrower already owns the property and generally would not be using a solicitor
or conveyancer to assist with the process, therefore the mortgage broker is
communicating only with the borrower.
Again, however, setting expectations is crucial to a happy relationship with your client.
Although there are different timing pressures depending on which state the borrower is
based in and the purpose of the application, the points of contact with the borrower are
the same and are shown in the following flow chart.
3-3.34 CIVMB_LP_T3-3_v3
Figure 1 Communicating with the borrower
Loan submission
Advise the borrower and their legal Loan conditional approval
representative (if applicable) that
the application has been submitted, Advise the borrower and their legal Loan formally approved
and advise when you will next be representative (if applicable) that
in touch. the lender has or has not approved Advise the borrower and their legal
the loan, subject to certain representative (if applicable) that
conditions, such as a satisfactory the application has been formally
valuation. It would be prudent to approved. The approval letter from
send the lender's approval letter to the lender must be sent to the
the borrower as evidence of this. borrower as evidence of
Advise when you will next be the approval.
in touch.
Advise the next steps in the process.
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Suggested answers
Apply your knowledge 1: The fact find

This activity requires independent research, therefore, no suggested answers are provided.
Apply your knowledge 2: The credit guide

Apply your knowledge 3: The preliminary assessment

1. PAYG pay slips, PAYG summary or ATO notice of assessment, rental income,
loan statements.
2. AMP – basic variable + 5 year fixed, ING Orange Advantage + 5 year fixed,
HSL Variable + 5 year fixed.
Apply your knowledge 4: The credit proposal

Apply your knowledge 5: How much can I borrow?

1. $1,809 per month
$1,620 per month
$2,211 per month
2. $331,915
$271,204.
Apply your knowledge 6: Verifying information

1. The minimum requirements are name, address, employment, date of birth,
credit history and equity
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Apply your knowledge 7: Documentation

1. • satisfy KYC requirements
• annual financial statement for past two consecutive years plus personal taxation
returns for each director/partner/guarantor
• ATO Notices of Assessment for these two years
• loan account statements for a minimum six-month period on any loans the
applicant currently has.
All funding purposes and amounts are to be clearly recorded on the application and
wherever possible this is to be evidenced by supporting documentation (e.g. copy of
the related contract, invoice or quotes).
2. • If the most recent final annual financial statements are older than 18 months,
in some instances the lender may accept accountant-prepared interim financial
statements or internal management accounts supported by all BAS since the last
full year of financial statements.
• If a low-doc application, low-doc declaration/s fully completed and signed by all
applicants (in the case of company/trust applications, declarations also required
from all guarantors). Separate declaration required for unregulated small business
low-doc loans — most lenders still operating in this space also require a letter
from the client’s accountant confirming the client can afford the loan.
– last 12 months BAS with the most recent statement being no older than
four months. Equipment finance and small business low-doc loans do not
require BAS or working account statements
– documentation confirming how the funds are to be used
– bank statements for the business working account covering the previous
six months, with the most recent statement being no older than 30 days
(not applicable for unregulated small business low-doc loans).
Apply your knowledge 8: Obtaining privacy consent

Apply your knowledge 9: Lenders’ credit policy

1. The main reason we collect, use, hold and disclose personal information is so we can
provide you with products and services. This may include:
• checking your eligibility for the product or service
• providing you with the product or service
• helping you manage the product or service.
2. We may share your personal information with other Westpac Group companies.
3-3
Sometimes we may disclose your personal information to organisations outside the

Westpac Group. For example, service providers such as mailing houses, insurers,
and credit reporting bodies.
3. We will use your personal information to offer you products and services that we
believe may interest you. We will not do this if you tell us not to.
Unless you tell us not to, we will disclose your personal information to companies
within the Westpac Group so they can market their products and services to you.
We may also disclose your personal information to companies outside the
Westpac Group who assist us to market our products and services.
If you do not want to receive marketing offers from us please contact us on the
details listed at ‘Contact us’.

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The Lending Process

Topic 3-3: Packaging the application

Certificate IV in Finance and Mortgage Broking

Part 1: Lender application forms...................................................................... 3-3.3

Part 2: The initial loan application ................................................................... 3-3.7

1 Loan type ............................................................................................ 3-3.7

2 Loan purpose....................................................................................... 3-3.7

3 Why the loan purpose is important ...................................................... 3-3.8

4 Receiving the application ..................................................................... 3-3.8

5 The business cycle ............................................................................. 3-3.14

6 Capacity to repay ............................................................................... 3-3.16

7 Follow-up information and Veda credit score ..................................... 3-3.18

8 Using checklists ................................................................................. 3-3.18

10 Credit cards and reasonable inquiries................................................. 3-3.21

11 Verification methods ......................................................................... 3-3.22

12 Original documents ........................................................................... 3-3.28

13 Maintaining information and records ................................................. 3-3.28

14 Privacy considerations ....................................................................... 3-3.31

15 Regulation of privacy — collection, storage and use of

16 Communicating with the borrower .................................................... 3-3.34

Suggested answers........................................................................................ 3-3.36

© Kaplan Education Pty Ltd 3-3.1

Table 1 Lending stages, activities and participants

Post-settlement • stamp mortgage documents lender/solicitor/conveyancer

Topic learning outcomes

Part 1: Lender application forms

© Kaplan Education Pty Ltd 3-3.3

Apply your knowledge 1: The fact find

Apply your knowledge 2: The credit guide

2. As a borrower, does this document give you confidence that the

© Kaplan Education Pty Ltd 3-3.5

Apply your knowledge 3: The preliminary assessment

Apply your knowledge 4: The credit proposal

2. As a borrower, do you think this document could accurately and

Part 2: The initial loan application

be required for a range of personal uses, including:

© Kaplan Education Pty Ltd 3-3.7

3 Why the loan purpose is important

4 Receiving the application

4.1 Application methods

Example: Loan application form

4.2 What information is needed for the application?

© Kaplan Education Pty Ltd 3-3.9

Table 2 Application information needed for loan applications

Personal information • full legal name (and maiden name if applicable)

Employment information • job title

Personal financial • annual income

Security/collateral • address of property

© Kaplan Education Pty Ltd 3-3.11

4.3 Supporting documentation

Table 3 Loan application documentation/information

Applicant/application Documentation required

• Bank statements for the business working account covering the

© Kaplan Education Pty Ltd 3-3.13

Applicant/application Documentation required

5 The business cycle

Table 4 Characteristics of business cycle phases

© Kaplan Education Pty Ltd 3-3.15

6.2 Household and other general living expenses

6.3 Financial commitments

Apply your knowledge 5: How much can I borrow?

© Kaplan Education Pty Ltd 3-3.17

7 Follow-up information and Veda credit score