Question: Raymon Wells is working in an executive position with a reputable local company and makes a decent amount of money. However, he seems to have
Raymon Wells is working in an executive position with a reputable local company and makes a decent amount of money. However, he seems to have a problem managing his funds, and you suspect he may have a gambling problem. Raymon has approached Everyday Bank asking for help with debt problems and as a credit officer at Everyday Bank, you want to help Raymon out while at the same time reducing the risk to Everyday Bank. Three years ago, Raymon Wells's wife, Cherry, found out he was having an affair with a co-worker and filed for divorce. The couple sold their $1.4 million home and split the money. Raymon used his portion to buy a townhouse in Burlington and to purchase a new car and motorcycle. He is now paying child support to his ex-wife, which he claims is up to date. You obtained a copy of Raymon's credit bureau report, and you now realize that he has a larger problem than he initially led you to believe. Attached is a summary of Raymon Wells's application and credit bureau report.
Loan Application Summary [For Internal Use Only]
YYYY-MM-DD
Customer's Name: Raymon Wells
Age: 55
Marital Status: Divorced
Address: 221 Saturn Road, Unit 16, Burlington, Ontario (own)
Time: 3 years
Previous Address (if less than 2 years): N/A
Contact Information: Raymon W..s@gmail.com; 905-509-9555
Purpose of Application: Assist customers with financial difficulties.
Loan Details: To Be Determined
Employment: LMS Imports & Wholesales Inc.
Position: Vice-President, Sales
Previous Employment (if less than 2 years): N/A
Income: $130,000/year (gross), Time on Job: 15 years
Additional Income: Nil
Description of Assets | Balance |
Chequing Account with Everyday Bank (Open 3 years | (1,000) |
Savings Account with Everyday Bank (Open 3 years) | 0 |
Townhouse in Burlington | 425,000 |
RRSPs Everyday Bank | 87,000 |
Harley-Davidson Motorcycle | 20,000 |
BMW - SUV | 55,000 |
Jewelry | 85,000 |
Furniture & Appliances | 40,000 |
Company Deferred Profit-Sharing Plan (Locked-in) | 120,000 |
Company Pension (Vested amount — Locked-in) | 235,000 |
Total | $1,066,000 |
Liabilities and Credit Payments
Description | Amount per month | Balance |
Mortgage with Everyday Bank (Open, 4%, 25-yr Amortization) | $1,052 | $200,000 |
Taxes on Condo ($4,800/yr) | 400 |
|
Condo Fee | 320 |
|
Heating Cost | 120 |
|
Electricity and Water | 100 |
|
Cable & Internet | 130 |
|
Golf Club Membership ($6,300/yr) | 525 |
|
Child Support for 3 Children | 1,500 |
|
PLC with Everyday Bank (Limit: $40,000) | 1,200 | 40,000 |
CIBC Visa Card (Limit: $10,000) | 500 | 9,800 |
MasterCard Everyday Bank (Limit: $10,000) | 500 | 10,000 |
Scotiabank Visa Card (Limit: $5,000) | 250 | 5,000 |
Total | $6,597 | $264,800 |
Total Net Worth (Assets - Liabilities) $801,200
Credit Bureau Summary
Name: Raymon Wells Age: 55
Address: 1221 Saturn Road, Unit 16, Burlington, Ontario
Employer: LMS Imports & Wholesales Inc.
Employment Position: Vice-President, Sales
Outstanding Credit with | Limit $$ | Balance $$ | Payments $$ | Ratings |
MBNA Mastercard | 10,000 | 10,000 | 1 month | R5 |
Scotiabank Visa Card | 5,000 | 5,000 | 2 month | R4 |
Petro-Canada Card | 2,000 | 2,000 | 1 month | R4 |
Royal Bank Visa | 10,000 | 9,900 | UTD | R1 |
PLC Everyday Bank | 40,000 | 40,000 | 2 month | R3 |
CIBC Visa Card | 10,000 | 9,800 | UTD | R3 |
Everyday Bank M/C | 10,000 | 10,000 | 2 month | R5 |
Mortgage Everyday Bank | 200,000 | 200,000 | UTD | I1 |
Collection Activities: 2 cases
Description: Garnishee for Unpaid Child Support
Lender: Burlington Civil Court Amount: $4,500
Description: Garnishee Outstanding for Unpaid Taxes
Lender: Canada Revenue Agency Amount: $7,300
Recent Inquiries:
MBNA MasterCard - Last month
Royal Bank Visa - Last month
TD Visa Card - Last week
Now that you have had an opportunity to review the application and the credit bureau report, answer the following questions:
1. Calculate Raymon Wells's current TDSR.
2. Assuming you will be helping Raymon out of his mess, how would you restructure his current debt and what conditions (collateral) would you request to go forward with your recommendations? (Note: Raymon's deferred profit-sharing plan and his company pension belong to him and are assets, but they cannot be used as collateral for a loan.) [Hint: Refinancing with a Mortgage for $300,000 at 4% with 25-year amortization will have a monthly payment of $1,586 or with a 2nd Mortgage for $100,000 at 5% 20-year amortization will have a monthly cost of $660]
3. Calculate Raymon Wells's new TDSR based on your recommendations.
4. Would your recommendation satisfy the Loan-to-Value ratio?
4. What are the two main reasons you would try to help Raymon Wells?
Explain how your recommendation supports these reasons.
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