Deal indicator charts are displayed in the Summary tab and are designed to assist brokers, their staff and ACL holders/aggregators in better understanding the risks of the loan transaction.
All charts displayed represent 'after the new loan' position for all deal applicants combined, with only security guarantors being excluded.
The objective is to make use of 'a 3 second rule', where user can understand risks involved in proceeding with the deal and possibly the likelihood of a compliance audit for that deal without reading the detail of the deal.
These charts are there to assist brokers in the Best Interest Duty era to ensure deals are well documented, clients well serviced and risks reduced prior to submitting the loan to the lender.
BID process steps
We have provided a simple 5 step process to easily comply with the Best Interest Duty (BID) requirements. A chart with these steps appears in the Needs & objectives, Product requirements, Compliance comments & documents and Summary tabs of broker tools.
Net asset position
This chart indicates total assets and liabilities and the resulting position after the new loan is applied. It shows net asset worth and can assist in understanding clients capacity to deal with risks or any future changes in their position.
Net cash position
This chart shows actual cash position after the new loan is provided. It takes into account actual figures entered for income, expenses and loan repayments as well as the new loan repayment figure. It shows the snapshot of clients budget without any buffers applied.
Financial risk indicator
This gauge shows the result of the balanced scorecard applied to the risk answers in the Needs & objectives tab. For examples, clients with credit issues or job uncertainty will show higher risk than others. Applicants with high financial risk should be looked at with more scrutiny as well as more time to educate about their best interests, options and recommendation.
Financial stress indicator
This is the figure visible at the bottom of Monthly financial position table in the buffer Surplus/deficit field. It indicates funds that applicant would have once financial buffers are applied and future foreseeable changes are added.
Low stress indicates a buffer position with $1,000 or more left in applicant's 'pockets'. Medium relates to $0 to $999 figure and High stress indicates a negative buffer position. It is possible that applicant services lender policy and still has a High financial stress.
HEM variance is a difference between disclosed expenses and expenses with HEM figure applied. We use Melbourne Institute HEM and apply it to LIXI expense categories.
A negative HEM variance means that expenses stated in the Expense tab are below figures provided in Melbourne Institute HEM tables.
The result is the difference between expense field for the proposed and buffer position in the Monthly financial position table.
Debt to income ratio (DTI)
DTI is the ratio of total debt limits (not balances) and gross income for all applicants. Our DTI figure applies after the new loan takes place. If limits on existing loans are omitted (ie, set as $0), DTI will take into account loan balance.
DTI score assist users to better understand applicant's servicing risks. It is displayed as a numerical value. Note that lenders have their own standards for acceptable DTI levels.
Loan to Value Ratio
LVR is the ratio of new loan amount and the total value of the security. Typically, LVR of 80% or less is seen as the lower risk than those above 80%.
Word count shows how many words have deal owners entered on the compliance comment section. It is only a quantitative measure and we set the standard at 400 words or more (one typed A4 page). High risk deals would require more commentary and having a reminder of the word count might remind users to add more explanation and have better file notes in case deal needs to be explained in the future (to an auditor, ASIC, legal council, etc).