U4: T11 - CHECKING THE APPLICANTS CREDIT STATUS

Question 1

What are 4 pieces of information not revealed by references or statements?

Answer 1

1. Pending court hearings
2. Purely cash transactions, eg undeclared income or cash borrowings from the family
3. Action for maintenance / child support claims
4. Borrowings yet to be drawn down

Question 2

Define Credit Bureau?

Answer 2

An organisation with a vast database of information on individuals, relating to previous bad debts and default, county/sheriff court judgments and insolvency.

Question 3

Experian, Equifax and TransUnion are all examples of?

Answer 3

Credit Bureaus. Which store and maintain financial and public records of people who have received credit. Credit references provide an insight into the activities and credit problems of specific individuals based on historical information. A credit search could show a ‘default’.

Question 4

How long does a credit default appear on a person’s credit record?

Answer 4

6 years, even if arrears have been paid off.

Question 5

Define Pay Day Loan

Answer 5

Short term, very high interest unsecured lending designed to be paid off on the borrower’s next payday.

Question 6

Pay Day loans show up on all credit searches. True or false.

Answer 6

False.

Due to the short duration of pay day loans they may not show up on some searches. That said, lenders tend to use very thorough credit searches and they may show pay day loans taken out up to 6 years ago.

Question 7

Define Guarantoor

Answer 7

An individual, a company or a partnership that provides a guarantee. Also known as a surety.

Question 8

Define Guarantee

Answer 8

A formal agreement to accept legal responsibility for the repayment of a loan if the borrower cannot, or will not, repay it themselves.

Question 9

For a full liability guarantee, what % of the mortgage repayments must guarantors be able to demonstrate they can afford in addition to their own commitments?

Answer 9

At least 100%

Question 10

What are the two types of loan guarantees?

Answer 10

Full liability
Limited liability

Question 11

Define limited liability guarantee (with respect to a loan)?

Answer 11

• The liability is limited to the difference between the loan the lender would normally agree and the loan needed, with a possible additional percentage of perhaps 10%.

– Eg: if the property was purchased for £200,000, the borrower had a £20,000 deposit and the lender would normally lend £150,000 based on the borrower’s income, the guarantee would be for £30,000 plus 10% of the borrower’s shortfall, totalling £33,000.

Question 12

What should lenders always advise guarantors to do before taking out a guarantee?

Answer 12

Seek INDEPENDENT legal advice.

Question 13

What 6 reasons can render a guarantee invalid?

Answer 13

1. Lack of capacity to contract
2. Undue influence
3. Misrepresentation
4. Misapprehension
5. Mistake
6. Duress

Question 14

Which of the following could not be identified by reviewing a prospective borrower’s financial statements?

a) Whether the borrower regularly exceeds their overdraft limit.
b) Whether the borrower regularly receives income in cash.
c) Whether the borrower’s regular income is as stated on their mortgage application.
d) The borrower’s ability to manage their financial affairs soundly.

Answer 14

b) Income received in the form of cash is not generally recorded on financial statements.

Question 15

Which of the following is most likely to receive a good credit score?

a) Ranbir, who has a personal loan and a mortgage and no record of missed payments.
b) Joleena, who has never had a credit card, loan or mortgage.
c) Barry, who has seven credit cards and has just applied for another one.
d) Debbie, who has applied for payday loans twice in the past year.

Answer 15

a) Ranbir, because he has a record of managing credit well.

Joleena has no credit history on which to base a credit score, while Barry’s multiple credit cards indicate difficulty in managing his finances, as do Debbie’s payday loan applications.

Question 16

An individual who assumes full liability as a guarantor for a mortgage loan must be in a position to repay 100 per cent of the outstanding loan if the borrower defaults. True or false?

Answer 16

True

Question 17

Which of the following is most likely to invalidate a guarantee?

a) The guarantor writing to the lender requesting to be released from the guarantee.
b) The guarantor losing their job.
c) The lender failing to advise the guarantor that the borrower had missed several repayments.
d) The guarantor having experienced an episode of mental illness at the time of signing the guarantee.

Answer 17

d) A person suffering from a mental illness may be regarded as lacking the capacity to contract and therefore any guarantee they give may be invalid.

Question 18

A sole trader who fails to make payments under a CCJ may be issued with an attachment of earnings order. True or false?

Answer 18

False. An attachment of earnings order can only be made in relation to an employee, as it requires the employer to deduct money from the individual’s pay and send it to the court for onward payment to the creditor.

Question 19

What is the effect of a trustee in bankruptcy filing a ‘Form J restriction’ with the Land Registry in relation to a bankrupt’s property?

a) It prevents the owners from selling the property.
b) It permits the trustee in bankruptcy to sell the property without recourse to the owners.
c) It requires the Land Registry to note the trustee’s interest in the property and notify the trustee of any dealings relating to it.
d) It restricts the owner’s right of entry to the property.

Answer 19

c) It requires the Land Registry to note the trustee’s interest in the property and notify the trustee of any dealings relating to it.

Question 20

When completing a mortgage application, making false statements or providing false information is only a crime if the application leads to a mortgage being granted. True or false?

Answer 20

False. Misrepresentation or making false statements are crimes under the Fraud Act 2006, regardless of the outcome.

Question 21

An expression of opinion as to an applicant’s creditworthiness is not regarded as personal data under data protection legislation. True or false?

Answer 21

False

Question 22

Which of the following would potentially be regarded as mortgage fraud?

a) Omitting information from the mortgage application about repayments due on a loan from a friend.
b) Including a variable annual bonus in the figure for regular income on the application.
c) Stating a purchase price 10 per cent more than the agreed price.
d) Submitting a mortgage application while under notice of redundancy without mentioning the fact.

Answer 22

All of the options given could potentially be regarded as fraudulent attempts to obtain a mortgage.

Question 23

In relation to anti‐money‐laundering requirements, for how long must evidence of a customer’s identity be retained?

Answer 23

At least five years from the end of the relationship with the customer.

Question 24

For joint borrower, sole proprietor mortgages, what are 2 SDLT implications?

Answer 24

1) Becoming joint owner would result in the SDLT surcharge on the purchase.

2) If one owner was already a property owner, the first‐time buyer SDLT exemption would not apply to the purchase.

Question 25

What are listed on the Register of Judgments, Orders and Fines for England

Answer 25

CCJs are listed.

Criminal court judgements

Question 26

How long do CCJs stay on the register of Judgments, Orders and Fines for England?

Answer 26

6 years

Question 27

In what instance do CCJs not stay on the register of Judgments, Orders and Fines for England?

Answer 27

If they are dealt with in less than 1 month

Question 28

It is a criminal offence to not disclose CCJs in mortgage applications. True or false?

Answer 28

True

Question 29

It is impossible to get a mortgage with a CCJ. True or false

Answer 29

False - CCJs will be taken into consideration gain the candidates application as a whole

Question 30

If a bankrupt is a sole owner of a property with at least £1k equity in it, what happens to the property in the case of bankruptcy?

Answer 30

If the bankrupt is the sole owner of a property with at least £1,000 equity in it, the property will transfer to the trustee in bankruptcy, who becomes the legal owner and can sell it to settle debts.

Question 31

Define equity.

Answer 31

The difference between a property’s sale price and any expenses such as the mortgage settlement figure and conveyancing fees.

Question 32

In the instance a property is jointly owned by a bankrupt and someone else, the bankrupt’s interest in the property passes to the trustee in bankruptcy. True or false

Answer 32

False. It does not automatically pass

Question 33

If there is in excess of £1k equity in the property, what can the trustee in bankruptcy do for a joint owned property?

Answer 33

Apply for a possession order and sell the property if the bankrupt’s interest in the property (share of the equity) is £1,000 or more.

Question 34

Where the bankrupt’s interest exceeds £1,000, how long can the forced sale of the mortgaged property wait?

Answer 34

At least one year to allow the family to make alternative arrangements.

Question 35

The joint owner can ‘buy out’ the bankrupt’s interest in the property from the trustee in bankruptcy. True or false

Answer 35

True

Question 36

If the property is the bankrupt’s main residence, how long does the trustee have from the date of the bankruptcy order to decide whether to sell the property to pay the debts?

Answer 36

3 years

Question 37

If the property is not the bankrupt’s main residence, how long does the trustee have from the date of the bankruptcy order to decide whether to sell the property to pay the debts?

Answer 37

Trustee has no deadline

Question 38

Is an individual legally prevented from taking out a mortgage if they are subject to an IVA?

Answer 38

Yes.

There is nothing to prevent an individual with an existing IVA from borrowing, but lenders may be unwilling to consider an application.

Question 39

For an IVA to be arranged (Individual Voluntary Arrangments) creditors of what % fo the debt must agree?

Answer 39

75%

A creditors’ meeting must be held for an IVA to be arranged, and creditors representing at least 75 per cent of the debt amount must agree to the IVA.

Question 40

After an IVA is agreed, interest can continue to be charged to the debt. True or false

Answer 40

False.

Once the agreement is confirmed, interest and charges on the debts are frozen and the debtor makes fixed monthly payments towards the debts, as set out in the agreement.

Question 41

What are CVAs?

Answer 41

Company Voluntary Arrangements

Question 42

What is the criteria for a CVA to be agreed?

Answer 42

All directors or partners must agree

Question 43

What are the 3 criteria to arrange a Debt Relief Order (DRO)?

Answer 43

1) Owe a maximum of £30,000;
„ 2) have total gross assets not exceeding £2,000;
„ 3) have disposable monthly income (after tax, NICs and normal household expenses) of no more than £75.

Question 44

In relation to a DRO, what happens after a moratorium ends?

Answer 44

At the end of the moratorium, assuming the debtor has met the terms of the DRO, the debts are written off and they are discharged.

Question 45

Someone committing Mortgage fraud would be covered by regulation under:

A) Crime of Proceeds Act 2000
B) Crime of Act proceeds 2000
C) Proceeds of Crime Act 2002
D) Crime of Proceeds Act 2000

Answer 45

C) Proceeds of Crime Act 2002

Question 46

Under the Proceeds of Crime Act 2002, what would Mortgage Fraud be classified as?

Answer 46

A Money Laundering Offence

Question 47

What are the three principal money‐laundering offences?

Answer 47

Concealing, Arrange, acquiring or possessing.

Concealing criminal property;
arranging (ie enabling someone else to acquire, retain, use or control criminal property);
acquiring, using or possessing property that the individual knows or suspects to be the proceeds of criminal activity.

Question 48

Can you name two other offences in relation to money laundering that are particularly relevant to advisers?

Answer 48

Failure to disclose suspicions of money laundering to the authorities, and tipping off, ie alerting the suspect to the fact that they are under suspicion.

Question 49

What is the Joint Money Laundering Steering Group?

Answer 49

A group of UK trade associations that aims to foster good practice in countering money laundering, primarily through the provision of guidance notes.

Question 50

Define Customer due diligence?

Answer 50

The regulatory term for the process of verifying a customer and their identity.

Question 51

In the context of money laundering - which of the following would not be an acceptable form of identification?

• current passport;
  „- driving licence with photograph;
  „- entry on electoral roll;
• library card
  „- recent utility bill or council tax bill in the customer’s name;
  „- credit card statements accompanied by the credit card.
• university certificate
• mobile phone bill
• a formal introduction from an advisor

Answer 51

• University certificate
• Library card
• mobile phone bill

Note: If a financial intermediary (such as a mortgage adviser) or other authorised firm introduces a customer to a lender, the lender can accept the introducer’s written assurance that they have obtained sufficient evidence of identity.

Question 52

When someone is unable to access financial services because they are unable produce accepted forms of identification - it is known as what?

Answer 52

Financial Exclusion

Question 53

In the instance of financial exclusion, what method of identification can be accepted?

Answer 53

A letter from a solicitor, doctor or minister of religion who knows the client

Question 54

Following investigation for money laundering, how long must records of identification be kept?

Answer 54

5 years after the relationship with the customer has ended

Question 55

Following investigation for money laundering, how long must supporting evidence of transactions be kept?

Answer 55

5 years after the transaction as executed

Question 56

The lender has discovered a registered default against a potential borrower during a credit reference search for a mortgage application. Which of the following is untrue?

A) The default will show on the credit record for six years from the date of the default notice.

B) The default will be removed from the credit record if the arrears are settled.

C) The record will show the amount of the original default, subsequent payments made and the current balance.

Answer 56

B) The default will be removed from the credit record if the arrears are settled.

The default will remain on the record for six years, even if the arrears are settled within that period.

Question 57

Which of the following statements are true of payday loans? Select all that apply.

A) They charge high rates of interest.

B) They are a form of long-term lending.

C) Mortgage lenders may not lend to those who have used them.

D) They are seen as a regular form of borrowing.

E) They may not show up on credit searches.

F) Lenders use multiple data searches to check for them.

Answer 57

A) They charge high rates of interest.
C) Mortgage lenders may not lend to those who have used them.
E) They may not show up on credit searches.
F) Lenders use multiple data searches to check for them.

Payday loans are short-term high-interest lending. They are seen as last-resort borrowing for those who cannot manage their finances effectively.

Question 58

Credit scoring:

A) is a standardised process offered to lenders by specialist providers.

B) is a statistical tool used to determine probability.

C) blends data and customer attitudes to produce a score.

Answer 58

B) is a statistical tool used to determine probability.

Lenders tend to use a variety of processes to suit their own needs. Credit scoring is based purely on statistical data, and establishes the probability of a loan being repaid satisfactorily. It is used mainly to screen out high-risk applications.

Question 59

In relation to mortgage guarantors, with a limited liability guarantee the:

A) guarantee is shared between two or more guarantors.

B) amount of the guarantee is limited to a proportion of the mortgage.

C) guarantee will only be triggered in certain limited circumstances.

Answer 59

B) amount of the guarantee is limited to a proportion of the mortgage.

With a limited liability guarantee, the liability is limited to the difference between the loan the lender would normally agree and the loan needed, with a possible additional percentage of perhaps 10%. With a full guarantee the guarantor agrees to guarantee the whole mortgage, which is riskier than limited liability.

Question 60

In the Lloyds Bank plc v Waterhouse [1991] court judgment, a guarantee was ruled invalid due to undue influence. True or false

Answer 60

False.

The guarantee was ruled invalid due to misrepresentation.

Question 61

The guarantor has an interest in the property that is subject to the guarantee. True or false

Answer 61

False.

The guarantor has no interest in the property. If they wanted an interest they would have to become a joint owner and party to the mortgage.

Question 62

The guarantor must be informed if any payments are missed. True or false

Answer 62

False.

There is no such requirement, which means that the guarantor may be unaware of missed payments until the lender enforces the guarantee.

Question 63

It is entirely up to the lender to decide if it will agree to a guarantor’s request to be released from the guarantee. True or false

Answer 63

True

Question 64

A prospective guarantor may be able to guarantee a mortgage by depositing a specific sum with the lender for a specified period. True or false

Answer 64

True

Question 65

The guarantor must be informed if the mortgage holder requests a further advance, and they can refuse their consent. True or false

Answer 65

True

Question 66

A county court judgment will show on the Register of Judgments, Orders and Fines for England and Wales for six years from the date of the judgment:

A) in all circumstances.
B) unless the debt is paid in full within one month of the judgment.
C) but will be removed if the debt is settled within six years of the judgment.

Answer 66

B) unless the debt is paid in full within one month of the judgment.

A county court judgment will show on the Register of Judgments, Orders and Fines for England and Wales for six years from the date of the judgment unless the debt is settled within a month of the judgment. If it is settled during the six-year period it will remain on the register as ‘satisfied’.

Question 67

Sue and Paul jointly own their family home. The house is worth £250,000 and they have a mortgage of £100,000. Paul has now been declared bankrupt. The trustee in bankruptcy is considering options in relation to the house. The trustee:

A) cannot force a sale because it is jointly owned.
B) can force a sale but may be required to delay the sale for 12 months.
C) has two years from the date of the bankruptcy order to decide whether to sell the property to pay the debts.

Answer 67

B) can force a sale but may be required to delay the sale for 12 months.

The trustee could force a sale because, although the house is jointly owned, Paul’s ‘interest’ (his share of the equity) is more than £1,000. As it is the family home, the sale can be delayed for up to 12 months to allow the family to find other accommodation. The trustee has three years to decide whether to sell the property to pay the debts.

Question 68

Which of the following applies to an individual voluntary arrangement (IVA)?

A) 75% of the creditors attending a creditors’ meeting must agree to the arrangement.
B) Interest and charges on the debt will be frozen if an IVA is agreed.
C) The debtor will agree to make fixed monthly payments to settle the debts outstanding at the start of the arrangement.

Answer 68

B) Interest and charges on the debt will be frozen if an IVA is agreed.

Creditors representing 75% of the total debt must agree. The agreement will be to repay a proportion of the debt through regular fixed payments.

Question 69

For anti-money-laundering purposes, for how long must a lender keep records of customer identification?

A) Five years from the date evidence was last obtained.
B) Indefinitely.
C) Five years from the end of the customer relationship.

Answer 69

C) Five years from the end of the customer relationship.

Question 70

Which of the following would not be acceptable to a lender as evidence of a customer’s identity?

A) Written assurance from an authorised financial adviser.
B) Mobile telephone bill in the customer’s name.
C) Council tax bill in the customer’s name.

Answer 70

B) Mobile telephone bill in the customer’s name.

Council tax bills are acceptable, as are utility bills in the customer’s name, although mobile phone bills are not acceptable. If an authorised financial adviser has already carried out ID checks on a customer, the lender can accept written assurances that the adviser has carried out satisfactory checks.

Question 71

Which of the following could not be identified by reviewing a prospective borrower’s financial statements?

A) Whether the borrower’s regular income is as stated on their mortgage application.
B) Whether the borrower regularly exceeds their overdraft limit.
C) Whether the borrower regularly receives income in cash.
D) The borrower’s ability to manage their financial affairs soundly.

Answer 71

C) Whether the borrower regularly receives income in cash.