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© 2012 Cengage Learning

The Loan and the Consumer

Chapter 11

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In This Chapter

The federal Truth-in-Lending Act and standard loan procedures used to make application for a loan will be discussed.

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Regulation Z

Requires lender to clearly show the borrower the total cost of the credit.

Requirements include: Amount financed Finance charge Annual percentage rate Total payments

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• Down payment• Any payment• Number of payments• Period of payments• Amount of any finance charge, or statement: no charge for credit

• Cash price or the amount of the loan• Down payment (or none)• Number, amount, frequency of payments• Annual percentage rate (APR)• Deferred payment price or total payments

Mention these Triggers disclosure

AdvertisingTriggering Items and Disclosures

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APR Annual percentage rate combines the interest

rate with the other costs of the loan into a single figure that shows the true annual cost of the loan.

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Loan Application and Approval

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Loan Process

• Borrower

• Property

• Title

Lenders Qualify:

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Redlining

Refusing to make loans in certain areas.

NoLoans!

$ $$

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LOAN-TO-VALUE Ratios

Loan-to-value ratios above 80% present lenders with more risk

PMI protects lender

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Credit Report

Provides lender with independent means of checking borrower’s credit history.

Fair Credit Reporting Act – consumer right to their file at credit bureau.

Credit Scoring – method used today to evaluate credit risk.

FICO scores (300 to 850) Score of 720 or higher get the most favorable

interest rates.

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Subprime Loans Subprime loans have risk-based pricing and

rates are not quoted. Usually a rate is found, or negotiated, if it fits

the risk profile. Problems in financial market Predatory Lending

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Mortgage Fraud

Watch for aggressive lender tactics by some lenders who want to increase their base of loans, servicing fees, and origination fees.

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Scams

The Flip The Inflated Price The Contractor The Ultimate Lie

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Key Terms APR Credit report Fair Credit

Reporting Act Finance charge

Liquid asset Redlining Regulation Z Truth-in-Lending Act