1. © 2008 by South-Western, Cengage Learning Chapter 12 Chapter 12 Charles J. Jacobus Thomas E. Gillett

2. © 2008 by South-Western, Cengage Learning Georgia Real Estate An Introduction to the Profession Seventh Edition Chapter 12 The Loan and the Consumer

3. © 2008 by South-Western, Cengage Learning Truth In Lending Truth In Lending Implemented by Federal Reserve Board Regulation Z Disclosure of credit cost Dollars Percentage

4. © 2008 by South-Western, Cengage Learning Regulation Z Regulation Z Amt of downpayment Amt of any payment # of payments Period of repayment Dollar amt of finance charge Amt of Loan Amt of Downpayment # of payments, amount & frequency APR

5. © 2008 by South-Western, Cengage Learning Truth in Lending Truth in Lending Lending Disclosures Amount Financed: amt of credit Finance Charge: Total $ amount credit will cost Interest plus all loan costs APR: Total cost of credit expressed as a % The total payments

6. © 2008 by South-Western, Cengage Learning Truth in Lending Truth in Lending Exempt Transactions Business, Commercial, or Farm Loans Dwellings in excess of 4 family units 1 – 4 Unit owner occupied dwellings are covered Personal Property loans over $25,000 Failure to Disclose

7. © 2008 by South-Western, Cengage Learning Truth in Lending Right to Rescind Three business days Includes Saturdays. Does not apply to credit for acquisition of principal dwelling.

8. © 2008 by South-Western, Cengage Learning Loan Application & Approval 1.Type of mortgage & terms 2. Settlement Funds 3 & 4. Analysis of Borrower Cannot discriminate 4 & 5. Job & income stability 7. Monthly Income Amount and sources

9. © 2008 by South-Western, Cengage Learning Loan Application & Approval 8. Current housing cost vs. PITI 9. PITI 25% - 30% gross mo. income PITI + monthly expenses 33% - 38% gross mo. income 10. Source of closing funds Liquid assets 11. Debts & liabilities 12. Net worth

10. © 2008 by South-Western, Cengage Learning Redlining Redlining Refusing to make loans in certain areas.

11. © 2008 by South-Western, Cengage Learning Loan to Value Ratios 70% or less 80% Acceptable but higher interest rates Greater than 80% Increased rate Insurance

12. © 2008 by South-Western, Cengage Learning Credit Report Credit Reporting Act: Consumer have access to their credit scores Credit Scoring: evaluates credit risk FICO Scores: 500 – 850 5 Categories 10% type of credit 10% application for new credit 15% length of credit history 35% payment history 30% amount owed

13. © 2008 by South-Western, Cengage Learning Lending Sub prime Loans Risk based pricing Predatory Lending

14. © 2008 by South-Western, Cengage Learning Key terms Key terms APR Credit report Fair Credit Reporting Act Finance charge Liquid asset Redlining Regulation Z Truth in Lending Act