Topic 11 Checking the Applicant's Credit Status Flashcards
This is what in relation to what a lender should look for in financial statements?
Whether there is a surplus or a deficit or there are fluctuations and the reasons
Bottom line balance on bank statements
This is what in relation to what a lender should look for in financial statements?
Compare this with the information on the application form & employer’s reference
Regular Income
This is what in relation to what a lender should look for in financial statements?
Compare this with information on the application form
Regular payments out
This is what in relation to what a lender should look for in financial statements?
Amount, frequency & reasons
Overdrafts
This is what in relation to what a lender should look for in financial statements?
Unauthorized overdraft fees & bank charges
Fees & charges
This is what in relation to what a lender should look for in financial statements?
Frequency & amounts involved
Returned cheques/failed direct debits
This is what in relation to what a lender should look for in financial statements?
Continuous or irregular
Maintainence payments
This is what in relation to what a lender should look for in financial statements?
Regularity of payments, outstanding arrears, fees & charges & whether information is consistent with that on the mortgage form
Mortgage statements
All the below are examples of what?
- Pending court hearings
- Action for maintenance/child support claims
- Borrowings yet to be drawn down
- Cash transactions (undeclared) income or cash borrowings from family
Information not on references & statements
Why would a lender check the “Electoral roll” when performing a credit search?
To check whether the applicant is permanent resident at the address given
How can a credit search be made?
Using a “Credit Bureau”
What can be found out from a “Credit Bureau”?
Database that has information on individuals relating to previous:
- Bad debts
- Defaults
- County/sheriff court judgements
- Insolvency
What is a “Default”?
Where a borrower has missed 1 or more payments & did not respond to requests to correct the problem
How long will the credit reference show a default for?
6 years from default even if arrears are paid off
It may be harder for a person who has defaulted to obtain a mortgage. What might a lender do to a person who has had a default?
Charge a higher interest rate
What is a pay day loan?
A short term high interest rate loan designed to be repaid on the borrower’s next pay date
Why might a lender not want to lend to a person who has or had a pay day loan within the last 6 months?
It might indicate the applicant can not manage their finances properly
What is “Credit scoring”?
Is a way of assessing the likelihood of lending to someone based on a number of areas
Higher the score the better
What are these in relation to “Credit scoring”?
- Age
- Income
- Occupation
- Existing commitments
- Credit Searches
- Conduct of excising bank or loans with a lender
What areas a lender will assess when looking whether to lend to an applicant
What does a credit score consider?
- Has the customer experience of managing credit
- Has the customer show poor debt management in the past
Are credit scoring models
Fixed or Static?
Static & there is not single scoring model
These are situations in relation to what for credit scoring?
- Institution has a well developed data base
- Built into a mortgage scoring system
- Dealing with high volumes of business
- Lending policy is well defined
Situations where a credit scoring system is best suited
What is a “Guarantee”?
An agreement to repay a loan if the borrower is unable to do it themselves
What is a “Guarantor” and who can offer them?
Is a person who offers a guarantee. They can be:
- Individual
- Company
- Partnership
A guarantee is also called what?
Surety
What are the 2 types of Guarantee?
- Full Liability
- Limited Liability
What type of guarantee is this?
- Guarantor is liable for the entire debt if borrower defaults on mortgage payments
- Must be able to demonstrate they can afford at least 100% of the mortgage & their own commitment
Full Liability
What type of guarantee is this?
- Limited to the difference between what they lender would normally agree & the loan required
- Plus a percentage of percentage of around 10%
Limited Liability
These factors are all what in relation to guarantors?
- Lack of capacity to contract
- Under influence
- Misrepresentation
- Misappropriation
- Mistake
- Duress
Issues that can make a guarantee invalid
A borrower has no right to disclose information to the guarantor (unless the guarantor asks for specific information)?
True or False
True
What is a guarantor allowed to do if the mortgage holder requests a further advance or an extension of the term?
Can refuse their consent
MCOB 11.6 states that reference to customers must be read as referring to any guarantor of the customer’s obligations. This means what?
The lender must make the same checks on the guarantor as they would the applicant
Where a person acts as a “Guarantor” for a mortgage what are they required to do?
Deposit a sum of money into a savings account with the lender
This is what problem when people cannot meet their credit obligations?
- A person’s liabilities exceed their net assets
- They cannot meet their financial obligation when they are due
Insolvency
What is a County/Sheriff Court Judgement (CCJ)?
A judgement made by a court against a debitor who has had a civil case brought against them by a creditor
What happens if a term of a County/Sheriff Court Judgement (CCJ) are not meet?
Further action called Attachment of Earnings can be made
What is an “Attachment of Earnings” order?
Debtor’s employer must deduct a certain amount from their pay for the creditor (via court)
Who can “Attachment of Earnings”
Only be used against?
Employees
How long do County/Sheriff Court Judgements (CCJ) remain listed on the Orders & fines for England and Wales, Register of Judgements for?
6 years
For a County/Sheriff Court Judgements (CCJ) to be not listed on the Orders & fines for England and Wales, Register of Judgements. How long do they need to repaid within?
1 month
Award for debts brought to the sheriff court in Scotland are called what?
Money decress
It is a criminal offence to conceal County/Sheriff Court Judgements (CCJ)?
True or False
True
If a bankrupt person is the sole owner of a property & it has at least £1,000 equity in the property who is the legal owner?
Bankrupt owner? or Trustee in Bankruptcy ankruptcy?
Trustee in Bankruptcy
What must be entered at the land registry when a legal owner is declared bankrupt?
Bankruptcy restriction notice
If a property is jointly owned the bankrupt’s interest still passes to the “trustee in bankruptcy”?
True or False
False
What is a “Form J restriction”?
Records a “Trustee in Bankruptcy” interest in a property?
What must the land registry do if a “Form J restriction” is in place?
Inform the “Trustee in Bankruptcy” of any dealings relating to the property
If the property is the bankrupt’s main residence. Within how many years does the “Trustee in Bankruptcy” have to sell the property?
3 years
The process for bankruptcy in Scotland is called “Sequestration” but what is the minimum debt it can be applied at?
£3,000
What does an “Individual Voluntary Arrangement (IVA) do?
Alternative to bankruptcy that allows a debt to rescheduled over a period of time
For an “Individual Voluntary Arrangement (IVA)” to be agreed what percentage of debt held must a creditor hold?
75%
Who supervises an “Individual Voluntary Arrangement (IVA)?
Insolvency Practitioner
What is the Scottish Equivalent of an “Individual Voluntary Arrangement (IVA)?
Protected Trust Deed
How long does a “Protected Trust Deed” remain in place?
4 years
The trustee of a “Protected Trust Deed” must advertise the proposal in the “Edinburgh Gazette” within how many weeks do the creditors have if they wish to object?
5 weeks
The “Protected Trust Deed” takes affect if what?
- No more than 33% of creditors by value
- More than half the creditors object
The company equivalent of an Individual Voluntary Arrangement (IVA) is called a what?
Company Voluntary Arrangement (CVA)
What type of arrangement would help people with the below?
- Owe a maximum of £30,000
- Have total gross assets not exceeding £2,000
- Have disposable income of no more than £175 PCM
Debt Relief Order (DRO)
The creditors over a person who has a Debt Relief Order (DRO) cannot seek repayment for how long?
12 months
They are examples of what type of fraud?
- Incorrect income stated on application form
- False salary references
- Omission of outgoings from application form
Mortgage Fraud
They are examples of what type of fraud?
- Details of existing debts withheld
- Failure to disclose relevant information
- Organised attempts to obtain mortgage finance on properties that do not exist
Mortgage Fraud
They are examples of what type of fraud?
- Fraud instigated by dishonest intermediaries, solicitors & accountants
- Bogus financial accounts
- Bogus valuations
Mortgage Fraud
Fraud occurs whether or not the mortgage is granted?
True or False
True
The term “data” covers what about a person?
- Facts
- Expressions of opinion about people
Money Laundering is covered by which act?
Proceeds of Crime Act 2002
What is Customer Due Diligence (CDD)?
A way of verifying customers identity
In relation to Customer Due Diligence (CDD) firms might be required to find out what from a customer?
Source of what?
Source of funds/deposit
Is a staff member of a financial institution has any suspicions regarding transactions in a customer’s account they must reporting it to who?
The firm’s
Money Laundering Reporting Officer (MLRO)
When verifying a customer what are the below?
- Current Passport
- Driving Licence with photograph
- Entry on electoral roll
- Recent utility bill/ council tax bill
- Credit card statement with credit card
Acceptable forms of ID
What can a lender accept if a customer has been introduced to them via an Intermediary?
Written assurance confirming they have obtained evidence of identity
What is “Financial Exclusion”?
A situation where a customer is unable to use financial services because they been unable to produce acceptable ID
In a situation of “Financial Exclusion” what may a firm accept to help a customer?
“Evidence of Identification” from a person in a position of responsibility (Solicitor or minister of religion)
How long must a firm keep records of ID & transactions for as (evidence into money laundering)
5 year (at least)
If a house is jointly owned & 1 owner is declared bankrupt can the “Trustee in Bankruptcy” sell the property?
Yes
Only if the bankrupt’s (share of equity) is more £1000
If a house is joint owned & 1 owner is declared bankrupt and the property is sold by the “Trustee in Bankruptcy” how long can the sale of the property be delayed to enable the occupants to find another property?
12 months
Where an Individual Voluntary Arrangement (IVA) is being considered the creditors will accept a reduced payment?
True or False
True
