Cuic 210

Front 1

What strategies are used to develop a loan portfolio?

Back 1

Diversification, the matching concept, liquidity and pricing.

Front 2

Explain the ways in which a loan portfolio can diversify.

Back 2

Mix of loan types,

Mix of member occupations,

Mix of dollar amounts,

One name limits (not over lending to one individual or company).

Front 3

Define risk.

Back 3

Uncertainty of future events.

Front 4

Define purpose of loan portfolio.

Back 4

It is the key to profitability.

Used to manage risk. Higher the risk, the higher the potential return.

Foundation for cross-selling.

Front 5

Define diversification, matching concept, liquidity and pricing in regards to maintaining a loan portfolio.

Back 5

Diversification - spread risk across a number of assets. Offer loans to people of different industries, occupations, different amounts, and not too many to one individual.

Matching - equate term of deposit with term of loan. Keeps consistent spread between interest rate received on deposit and interest charged on loan.

Liquidity - maintain funds available to cover operating expenses and funding for loans. Excess liquidity means lower return on assets though.

Pricing - assign appropriate interest rates. Consider three things : maintain spread between depositors and borrowers, reflect inherent risk, take into consideration the security.

Front 6

Factors that play a role in the review of lending policies (5).

Back 6

- change in global, regional, local economic conditions

- change in financial markets (like money markets)

- change in availability of deposits necessary for the funding of loans

- change in profit objectives

- change in marketing strategies by credit union

Front 7

Lending policies are subject to which three constraints.

Back 7

1. federal and provincial legislation

2. bylaws of the individual credit union

3. risk inherent in the loan portfolio

Front 8

Name the four types of loan offered by credit unions.

Back 8

Consumer loans (personal loan, LOC, charge cards, OD protection.

Mortgage loans (terms - 6 months to 10 years)

Commercial loans - for business where source of repayment is the business entity.

Agricultural loans - purchasing, operating, equipping or maintaining a farm unit.

Front 9

Two elements of credit.

Back 9

1. Future payment.

2. Confidence (lender has confidence in the borrower to meet the credit obligations in the future.

Front 10

Lending is not a favour. Why?

Back 10

Credit in lending someone else's money making it necessary to ensure the safety of the principal and to ensure a good return to the credit union. Especially important since lending is the major source of income for a credit union.

Front 11

Four function of collateral.

Back 11

1. ensures member has a stake in the transaction.

2. provides incentive for borrower to repay the loan.

3. provides means of at least partial recovery in event of default.

4. exercises control over an asset so that member is unable to sell it.

Front 12

What are three methods of gathering information for a loan application and what advantage applies to all?

Back 12

1. Face to face

2. telephone interview

3. self completed loan app (online)

Advantage = cross selling & up selling

Front 13

How do you verify income for a self-employed / commissioned salesperson.

Back 13

Tax returns. Gross income less expenses equals the net income which is what you consider. You can look at financial statements for self employed.

A proprietorship which has been in operation for 3 years is considered stable and regarded a good lending risk.

Front 14

Which two cardinal principles apply to the exchange of information between FIs.

Back 14

Accuracy and confidentiality.

Front 15

Disadvantage of using income tax returns to verify income.

Back 15

Not a good indicator of future income. Also, there may be outliers like inheritance that don't reflect the member's income situation accurately.

Front 16

Alternative to a name search for an individual.

Back 16

Vehicle search. Allows loans officer to search for any outstanding registered encumbrances.

Front 17

Poor credit rating - what should you consider.

Back 17

When did the problem occur and how old was the client when it occurred. Was it a small or large obligation. What was the situation - employment issues, marital dispute..

Front 18

What are the 8 C's of credit.

Back 18

Character - willingness to repay. Moral traits.

Capacity - debt ratios, ability to repay, upward mobility

Capital - net worth, asset valuation

Conditions - economic situation, upward mobility, job security.

Control - how the loan flows from start to finish, will it take a lot of time and effort. New account?

Communications - cultural barriers, telephone or written

Collateral - security, value over time

Cross Selling - opportunities

Front 19

What is the GDS / TDS.

Back 19

Gross Debt Servicing Ratio :

Monthly (annual) rent or mtg pmt + Heating costs /monthly (annual) gross income.

= what portion of income is required to meet monthly housing costs.

Total Debt Servicing Ratio takes into account all loan payments.

PITH = principal + interest + property taxes + heating

@ Vancity:

TDS = PITH + net rental loss + monthly expense

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gross monthly income + net rental gain

Front 20

Two critical variables for assessing assets to calculate net worth.

Back 20

Quality and valuation.

Front 21

Difference between current market value and realizable value.

Back 21

Current market value - going price of an asset in market place.

Realizable value - price credit union could get for asset in case of seizure and quick sale.

Front 22

Difference between blended payment and principle + interest payment.

Back 22

Blended - fixed payments, proportion of principle and interest will fluctuate.

Principle + interest - principle is fixed, uneven payments

Front 23

What security documentation is mandatory for all types of consumer loan advances.

Back 23

Sign all legal documents that stipulate:

period, payment terms, interest rate, security pledged

Front 24

What is the disadvantage of using cash surrender value of insurance policy as collateral

Back 24

If borrower defaults on premium payments, insurance company offsets CSV of policy, diminishing the value of the collateral.

Front 25

Most common type of loan security.

Back 25

Collateral security (personal property excluding land or buildings)

Front 26

When guarantor signs guarantee and postponement of claim, what are they doing.

Back 26

Guaranteeing that loan will be repaid in case the borrower defaults. They waive payment of any other funds that they are owed by the borrower until the credit union is paid.

Front 27

When is loan considered DEL.

Back 27

Day after payment is missed.

Front 28

How to confirm repayment commitment over phone when loan falls into arrears.

Back 28

Subsequently confirmed in writing.

Front 29

Info to gather from internal sources to skip trace.

Back 29

Look at loan application: names, addresses of references, past and present employers, co-applicant or co-signor, endorser or guarantor

Front 30

Why is condition report important.

Back 30

when member defaults and must hand over chattel, do report so that member doesn't accuse us of damaging it if it is to be returned.

Front 31

Attributes of financial coach:

Back 31

Curiosity.

Objectivity. (stand back from an issue and deal with the facts, don't let emotion affect judgment)

Caring Attitude. (recognize most people are doing their best given their circumstances)

Strong listening skills. understand views and needs of others.

Knowledge.

Front 32

How to calculate share valuation for use of collateral.

Back 32

IF value per share if above credit union minimum, then they can be used. Multiply the value by the credit union margin.

1000 shares ABC Inc. @ $10/share

Credit union min = $7/share ---- acceptable

Credit union share margin = 35%

Collateral value = $3500

Front 33

List reasons for a members delinquency (3).

Back 33

Timing (repayment schedule doesn't work)

Temporary - one time situation

Serious - credit union may suffer loss

Front 34

Define real estate, real property, and land

Back 34

real estate - physical land or buildings

real property - rights to use real estate (to sell, rent, use etc)

land - earth extending to centre of the planet

Front 35

Typical disadvantages of property ownership

(MEPE)

Back 35

Municipal taxation - municipalities tax real property in all Canadian provinces

Eminent domain - government at any level has the power to expropriate property

Public restrictions on land use - municipalities may subject real properties to zoning

Easements - a right acquired by someone to use another's real estate, generally for access. eg. right of way

Front 36

Describe an estate in fee simple.

Back 36

highest possible estate in land - created by deed or by will and sometimes acquired in operation of law.

Front 37

List unities for joint tenancy.

Back 37

Unity of possession - each party entitled to undivided possession of the entire estate

Unity of time - joint tenants must be in possession of the land simultaneously

Unity of title - each party obtains title under the same instrument of deed

Unity of interest - each party interest is identical

Front 38

Real property mortgage

Back 38

loan arrangement in which the security consists of land.

Front 39

Difference between the registry and Torrens land registration systems.

Back 39

under the Torrens system, the government issues a "certificate of indefeasible title" meaning the person's title cannot be upset by other claims to ownership arising from unregistered past transactions

Front 40

Can a joint tenancy arise by operation of law only?

Back 40

Only can be created by deed or will. They must state that the estate is to be adjoint tenancy otherwise it is assumed tenants in common.

Front 41

Describe the difference between CMHC and Genworth

Back 41

CMHC is federal govt agency guided by policies the govt wishes to follow.

Genworth is privately owned corporation with publicly traded shares. Expected to generate income for shareholders.

Front 42

What are the services of CMHC

Back 42

offers variety of insured mortgage programs covering all types of properties - single family homes, rental projects, commercial and residential apt buildings. 2nd mortgage insurance on residential properties.

Front 43

Who is responsible for payment of legal fees and maintenance costs for the time period in which the loan is in default.

Back 43

All legal fees and maintenance costs during default are paid by the mortgage insurer.

Front 44

What legal restrictions apply to the max mtg amount a lender can approve.

Back 44

Lender is not allowed to grant a mtg which is more than 80% of the lending value (market value) of a residential property unless the mtg is insured.

Front 45

How is the lending value of the insured mtg determined?

Back 45

Determined by the insurer. For existing housing, it will be based off lesser of purchase price or appraised value.

Front 46

Six items appearing on underwriter's checklist for residential mortgage loans.

Back 46

- signed mortgage app form (with net worth)

- proof of income by borrower

- verification of sources of equity (downpayment)

- copy of accepted agreement of purchase and sale

- updated credit report

- satisfactory appraisal

Front 47

What is the letter of instructions

Back 47

requests the lawyer to act for the lender in the preparation and registration of the mtg instrument . Also requests the lawyer to supervise the disbursement of the loan proceeds

Front 48

How do you know the property is free of encroachments, zoning infractions, or rights of way

Back 48

checked through the provisions of the survey document.

Front 49

Who is responsible for the disbursements of the mortgage funds.

Back 49

lender's lawyer.

Front 50

3 stages of residential construction

Back 50

1. roof on stage (30% of construction costs)

2. drywall stage (30%)

3. finishing stage

Front 51

What to look for on Lawyer's report on title

Back 51

1. lender's mtg will constitute first charge (or 2nd)

2. municipal taxes have been paid or will be paid prior to registration

3. no liens or executions outstanding

4. adequate fire insurance has been arranged on the mtg'd property

Front 52

What info about interest is in mtg document

Back 52

states that loan shall bear interest at a rate calculated half-yearly and not in advance, by law. If blended, effective monthly interest rate must be of a rate per month which, when compounded 6 times, will not exceed one-half the stated annual rate.

Front 53

Hazard insurance

Back 53

normally covers fire, windstorm, explosion, vandalism, lightning. Some places may require earthquakes.

Front 54

Boiler insurance

Back 54

considered for any building that has a low, or high pressure boiler. Usually not covered by hazard.

Front 55

Rent, Rental Income, Business Interruption Insurance

Back 55

protect income while a property is unrentable because of physical damage. Or protects the insured's ongoing financial commitments in case of business disruption caused by insured peril.

Front 56

Liability insurance

Back 56

third party liability insurance is provided through a named insurer (1st party) for a named insured against (2nd party) against claims for loss or damage made by another unnamed party (3rd party)

Front 57

Consequential Loss Insurance

Back 57

property insurance covers the value of the real estate, however, unless endorsements have been attached, it does not cover consequential losses which come about through a covered peril .

Front 58

Home owner's or blanket insurance

Back 58

combination in one policy that otherwise would be provided under 3 or more separate policies. Applies to owners of residences who are required by the lender to Insure the buildings against risk of peril, loss by burglary and personal liability.

Front 59

Builder's All Risk Insurance

Back 59

During construction stages of a project this insurance is usually required

Front 60

Mtg impairment insurance

Back 60

cover mtg lenders in case the individual property insurance policy lapses due to error or omission (failure to renew, failure to receive notice of cancellation etc.)

Front 61

Co - insurance calculation

Back 61

loss payment from insurance company = [amount of insurance carried/amount of insurance required] * amount of loss

Front 62

Common service fees

Back 62

Sundry administration

Stand by fees

Application fee

Appraisal or valuation

Renewal

Discharge/assignment

Dishonoured payment processing charge

Prepayment fee

Front 63

Flat rate payment structure

Back 63

Principle, taxes, and interest. Tax credited to the principle account. Taxes added to the principal account when the lender pays them on behalf of the lender.

Front 64

Three forms of the insurance contract

Back 64

The specific or single property form - covers specific single properties or sections of properties for specific insurable amounts

The blanket form - two or more properties or sections of property at one location for a specific sum insured. Or the buildings and contents of one or more building at various locations for a single or separate sum

The reporting form - used in cases where the values of stock and goods can fluctuate

Front 65

What conditions can lead to a reduction in taxes or assessment?

Back 65

-building damaged by fire or other misfortune

- insulated with urea-formaldehyde

- commercial buildings have been vacated or partially vacated for all or any part of the year

Front 66

What to consider when deciding on compensation for the prepayment of mortgages

Back 66

- current interest rates

- mortgage document, renewals, extension, amending agreements to determine if there are any prepayment privileges

- credit union's need for funds

- loss of business to the credit union

- credit union policy

- provincial / federal legislation

- status of mortgage

Front 67

Advantages of Power of Sale

Back 67

- inexpensive compared to foreclosure

- mortgagors, subsequent encumbrancer, and execution creditors are immediately put on notice and they must act within a specified time

- redemption period is fixed

Front 68

Disadvantages of Power of Sale

Back 68

- mortgagee open to attack by subsequent encumbrancer or execution creditor for an improvident sale action

- accelerates mtg and allows mortgagor to pay out loan without penalty

- mortgagee may not be permitted to take any other proceedings relative to the mtg obligations during the notice period to preserve and protect the property if it is found to be vacant

Front 69

Three methods of selling under Power of Sale or Judicial Sale

Back 69

1. sold through real estate broker

2. Auction

3. Sale by tender (like private silent auction)

Front 70

Advantages and disadvantages or foreclosure

Back 70

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- once courts approved mortgagee's actions, we cannot be challenged.

- court becomes central forum available to settle issues such as priority accounting

- once certificate of foreclosure is obtained, we become owner of property.

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-personal service to the mortgagor may be necessary. they must be given required notice.

- if request to redeem is filed by mortgagor, lengthy redemption period may be imposed.

- debt is extinguished after sale

- land transfer tax in some jurisdictions may be payable to the mortgagee. just another cost

Front 71

Why should the lender hold the discharge document for a short period of time

Back 71

ensure the cheque is cleared. ensure all debts have been repaid. outstanding loan obligations are very difficult to collect on the discharge document is released.

Front 72

List variations of a prepayment clause

Back 72

- accepting prepayment anytime with little or no compensation

- not accepting prepayment

- specifying time, amount and penalty for prepayment

- considering each request on an individual basis

Front 73

What is attornment of rents

Back 73

Mortgagee directs rent payments to the mortgagee. The mortgagee would then apply the payments to the mtg. This may place the mortgagee in the position of being mortgagee in possession

Front 74

Which four items can take priority over a mtg

Back 74

Realty taxes - taxes always take priority

Condominium common element expenses - from condo corps

Mechanic's or construction liens - liens registered by tradesmen

Lessee's rights - where leases are registered prior to take of a mtg.

Front 75

What are some forms of compensation for prepayment

Back 75

- the greater of the interest differential (difference between the expected income that would have been earned at the contracted rate for the remainder of the mtg term and the income that would be earned at the prevailing rate for the same remaining term, or three months interest on the amount prepaid

Front 76

Power to distrain

Back 76

gives the mortgagee the right to seize the goods and chattels of a debtor, to hold them, or to sell them and apply the proceedings to the outstanding loan amount

Front 77

Two needs of a credit union member

Back 77

1. financial needs

2. need for personal attention

Front 78

5 steps of handling complaints

Back 78

1. listen actively

2. repeat the key words

3. gain customer's agreement

4. describe corrective action

5. reassure the customer

Front 79

3 stages of business development

Back 79

1. formulation of business plan outlining specific marketing activities

2. implementation of the specific activities identified in the business plan

3. controlling and monitoring the business plan on an ongoing basis