Module 4 - Working with Lender
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Questions and Answers

What should mortgage agents consider creating to ensure that the needs and circumstances of both borrowers and investors are duly considered?

  • A Disclosure Statement for Brokered Transactions
  • A Transmittal letter
  • A Renewal form
  • A Know Your Client form (correct)
  • What type of mortgage disclosure statement is required for brokered transactions funded by investors?

  • Form 1.2
  • Form 2
  • Form 1.1 (correct)
  • Form 2.1
  • When should Form 2 - Renewal Form be used in mortgage transactions?

  • When the mortgage is registered in the investor's RRSP
  • When a new investor is replacing the existing lender
  • When the lender is the same (correct)
  • When a corporation name is used for the mortgage
  • What should mortgage agents document and keep on file as part of private lending borrower conversations?

    <p>The borrower's understanding of why they don't qualify for a traditional mortgage</p> Signup and view all the answers

    What is considered vital for investors in determining whether to participate in a mortgage deal?

    <p>The track record of the brokerage</p> Signup and view all the answers

    What type of form should be sent to formalize the mortgage according to the text?

    <p>Form 1</p> Signup and view all the answers

    What are private investors in the context of the text?

    <p>Individuals with money from inheritance, RRSPs, equity in properties, or other savings</p> Signup and view all the answers

    What is a syndicated mortgage as mentioned in the text?

    <p>A mortgage funded by a group of two or more private investors</p> Signup and view all the answers

    What does credit risk in private lending refer to according to the text?

    <p>The risk of the borrower defaulting on loan payments</p> Signup and view all the answers

    What is collateral risk in private lending, based on the information provided?

    <p>The risk associated with property value and renovation costs</p> Signup and view all the answers

    In the context of private lending, what does market risk primarily involve according to the text?

    <p>The risk of real estate market crashes or corrections</p> Signup and view all the answers

    What is one factor that may pose a risk in collateral risk, based on the text?

    <p>Material shortages and price increases during renovation</p> Signup and view all the answers

    What is considered a best practice when dealing with private lenders and investors?

    <p>Explaining details about the lender to the borrower</p> Signup and view all the answers

    What is an important aspect of investor/lender suitability?

    <p>The mortgage broker's recommendation suiting their needs</p> Signup and view all the answers

    What should be considered when evaluating an individual lender/investor's risk profile?

    <p>The nature of the mortgage making sense for the investor's knowledge level</p> Signup and view all the answers

    What does it mean to evaluate the investor's time frames for their funds?

    <p>Determining if the investor has an exit strategy if something goes wrong</p> Signup and view all the answers

    What is a crucial factor in evaluating the investor's knowledge of investments?

    <p>The detailed profile of the investor's expectations and financial information</p> Signup and view all the answers

    What should mortgage brokers do to inform their recommendations according to best practices?

    <p>Take care to fully evaluate the investor's experience, risk tolerance, limits, and expectations</p> Signup and view all the answers

    What is a key element to consider when analyzing mortgage details?

    <p>The term of the investment and liquidity</p> Signup and view all the answers

    Why is it important to confirm the source of funds for a lender/investor?

    <p>To ensure that the money is coming from legal sources</p> Signup and view all the answers

    What should an executive summary for investors accomplish?

    <p>Catch the attention of the lender regarding the project</p> Signup and view all the answers

    What is emphasized as a requirement by the FSRA when preparing to submit a project for financing?

    <p>Completing Form 1 and reviewing it with the investor</p> Signup and view all the answers

    Why should a mortgage professional check CRA tax filings and bank statements of a potential lender/investor?

    <p>To confirm that the money comes from legal sources</p> Signup and view all the answers

    What is a key factor that a private investor should consider when determining suitability of an investment?

    <p>The percentage of the investor's entire investment portfolio represented by the mortgage investment</p> Signup and view all the answers

    What is the main purpose of disclosing a potential or actual conflict of interest?

    <p>To help borrowers, lenders, and investors make informed decisions and assess whether a brokerage, broker, or agent may be putting their own interests ahead of those of the client</p> Signup and view all the answers

    What does assessing the borrower's 'capacity' involve?

    <p>Verifying the borrower's income, employment history, savings, monthly debt payments, and other financial obligations</p> Signup and view all the answers

    What do lenders consider when assessing the borrower's 'capital'?

    <p>The borrower's readily available money, savings, investments, properties, and other assets</p> Signup and view all the answers

    What is the purpose of discussing an exit strategy with borrowers?

    <p>To discuss with the borrower what the deal will look like long-term instead of what the best solution is at the moment</p> Signup and view all the answers

    Why is it important for a property appraiser to be experienced in the area where the property is located?

    <p>To determine the fair market value of the property</p> Signup and view all the answers

    What are some key factors for determining property value?

    <p>The building's internal and external characteristics such as square footage, number of rooms, year and quality of construction, appliances, flooring, roof, aesthetics</p> Signup and view all the answers

    What type of commitment letter promises to lend the borrower the specified amount once conditions are met?

    <p>Final Commitment Letter</p> Signup and view all the answers

    What is the main purpose of a commitment letter in the mortgage application process?

    <p>To demonstrate financial capability to the real estate agent</p> Signup and view all the answers

    What is the difference between a conditional commitment letter and a final commitment letter?

    <p>The guarantee to lend the specified amount</p> Signup and view all the answers

    What financial metric is used to estimate the profitability of potential investments, considering the time value of money?

    <p>Internal Rate of Return (IRR)</p> Signup and view all the answers

    What is the goal of using the Internal Rate of Return (IRR) in investment analysis?

    <p>To identify the rate of discount that makes the NPV zero</p> Signup and view all the answers

    What may be a challenge for younger agents starting their career in preparing the Internal Rate of Return (IRR)?

    <p>Preparing complex financial reports</p> Signup and view all the answers

    What should a suitable lender spend time doing when dealing with circumstances where a borrower is not able to meet mortgage payments?

    <p>Trying to work to help the borrower get back on their feet</p> Signup and view all the answers

    What does a mortgage professional need to do once a commitment letter is sent?

    <p>Review it with their client as soon as possible</p> Signup and view all the answers

    What is an important reason for discussing commitment letters with clients?

    <p>To ensure clients understand the difference between letter of intent and final commitment letter</p> Signup and view all the answers

    Study Notes

    Mortgage Agents and Private Lending

    • Mortgage agents should create a comprehensive plan to consider the needs and circumstances of both borrowers and investors.

    Mortgage Disclosure Statements

    • A Mortgage Broker Disclosure Statement is required for brokered transactions funded by investors.

    Mortgage Forms

    • Form 2 - Renewal Form should be used when renewing a mortgage.

    Documenting Private Lending Conversations

    • Mortgage agents should document and keep on file all private lending borrower conversations.

    Investor Considerations

    • Investors consider it vital to determine whether to participate in a mortgage deal based on risk, return, and liquidity.

    Formalizing Mortgages

    • A Commitment Letter should be sent to formalize the mortgage.

    Private Investors

    • Private investors are individuals or entities investing in mortgage deals.

    Syndicated Mortgages

    • A syndicated mortgage is a mortgage funded by multiple investors.

    Risk in Private Lending

    • Credit risk refers to the risk of borrower default.
    • Collateral risk refers to the risk of loss incurred if the property value is insufficient to cover the loan.
    • Market risk primarily involves the risk of interest rate changes affecting the investment.
    • One factor that may pose a risk in collateral risk is property value fluctuations.

    Best Practices

    • A best practice when dealing with private lenders and investors is to evaluate their risk profile, investment knowledge, and time frames for their funds.

    Investor/Lender Suitability

    • Evaluating an individual lender/investor's risk profile and knowledge of investments is crucial in determining suitability.

    Mortgage Broker Recommendations

    • Mortgage brokers should inform their recommendations based on best practices, considering the investor's risk profile, time frames, and investment knowledge.

    Mortgage Details

    • A key element to consider when analyzing mortgage details is the source of funds for a lender/investor.

    Executive Summary

    • An executive summary for investors should provide a concise overview of the investment opportunity.

    FSRA Requirements

    • The FSRA emphasizes the importance of preparing a comprehensive project plan when submitting a project for financing.

    Verifying Lender/Investor Credentials

    • Mortgage professionals should check CRA tax filings and bank statements of a potential lender/investor to verify their credentials.

    Investment Suitability

    • A key factor that a private investor should consider when determining suitability of an investment is their risk profile and investment knowledge.

    Conflict of Interest

    • Disclosing a potential or actual conflict of interest is crucial to maintain transparency and professionalism.

    Borrower Assessment

    • Assessing the borrower's 'capacity' involves evaluating their ability to repay the loan.
    • Assessing the borrower's 'capital' involves evaluating their financial resources and assets.

    Exit Strategy

    • Disclosing an exit strategy with borrowers is essential to ensure a clear understanding of the loan terms and repayment.

    Property Appraisal

    • A property appraiser should be experienced in the area where the property is located to ensure an accurate appraisal.

    Determining Property Value

    • Key factors for determining property value include location, condition, and market data.

    Commitment Letters

    • A commitment letter promises to lend the borrower the specified amount once conditions are met.
    • The main purpose of a commitment letter is to formalize the mortgage agreement.
    • A conditional commitment letter is contingent on specific conditions, while a final commitment letter is unconditional.

    Internal Rate of Return (IRR)

    • The Internal Rate of Return (IRR) is a financial metric used to estimate the profitability of potential investments, considering the time value of money.
    • The goal of using the Internal Rate of Return (IRR) is to evaluate investment opportunities and make informed decisions.

    Challenges in IRR Calculation

    • Younger agents may struggle with preparing the Internal Rate of Return (IRR) due to limited experience.

    Working with Distressed Borrowers

    • A suitable lender should spend time working with borrowers who are not able to meet mortgage payments, exploring alternatives to foreclosure.

    Post-Commitment Letter

    • Once a commitment letter is sent, a mortgage professional should follow up with the borrower and investor to finalize the mortgage agreement.

    Commitment Letters and Clients

    • Discussing commitment letters with clients is essential to ensure a clear understanding of the mortgage terms and conditions.

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