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The Loan and the Consumer

Chapter 11. The Loan and the Consumer. In This Chapter. The federal Truth-in-Lending Act and standard loan procedures used to make application for a loan will be discussed. Regulation Z. Requires lender to clearly show the borrower the total cost of the credit. Requirements include:

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The Loan and the Consumer

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  1. Chapter 11 The Loan and the Consumer

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

  3. 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

  4. AdvertisingTriggering Items and Disclosures Mention these Triggers disclosure • 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

  5. APR • Annual percentage ratecombines the interest rate with the other costs of the loan into a single figure that shows the true annual cost of the loan.

  6. Loan Application and Approval

  7. Loan Process Lenders Qualify: • Borrower • Property • Title

  8. Redlining • Refusing to make loans in certain areas. $ No Loans! $ $

  9. LOAN-TO-VALUE Ratios • Loan-to-value ratios above 80% present lenders with more risk • PMI protects lender

  10. 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.

  11. 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

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

  13. Scams • The Flip • The Inflated Price • The Contractor • The Ultimate Lie

  14. Key Terms • APR • Credit report • Fair Credit Reporting Act • Finance charge • Liquid asset • Redlining • Regulation Z • Truth-in-Lending Act

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