1. © 2012 Cengage Learning

2. The Loan and the Consumer Chapter 11

3. © 2012 Cengage Learning In This Chapter The federal Truth-in-Lending Act and standard loan procedures used to make application for a loan will be discussed.

4. © 2012 Cengage Learning 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

5. © 2012 Cengage Learning Down payment Any payment Number of payments Period of payments Amount of any finance charge, or statemen t: 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 theseTriggers disclosure Advertising Triggering Items and Disclosures

6. © 2012 Cengage Learning 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.

7. © 2012 Cengage Learning Loan Application and Approval

8. © 2012 Cengage Learning Loan Process Borrower Property Title Lenders Qualify:

9. © 2012 Cengage Learning Redlining Refusing to make loans in certain areas. No Loans! $ $ $

10. © 2012 Cengage Learning LOAN-TO-VALUE Ratios Loan-to-value ratios above 80% present lenders with more risk PMI protects lender

11. © 2012 Cengage Learning 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.

12. © 2012 Cengage Learning 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

13. © 2012 Cengage Learning Mortgage Fraud Watch for aggressive lender tactics by some lenders who want to increase their base of loans, servicing fees, and origination fees.

14. © 2012 Cengage Learning Scams The Flip The Inflated Price The Contractor The Ultimate Lie

15. © 2012 Cengage Learning Key Terms APR Credit report Fair Credit Reporting Act Finance charge Liquid asset Redlining Regulation Z Truth-in-Lending Act