Chalet 13: The Loan and the Consumer

Federal Consumer Credit Protection Act, popular known as?

Truth in Lending Act.

Truth in Lending Act

A federal law that requires certain disclosures when extending or advertising credit.

Advertising

Truth in Lending rules affect both real estate professionals and property ownes when advertsing just about anything, including real estate, and including financing terms in the ad.

Trigger Terms

1. Amount of Down payment

2. Amount of Any payments

3. Number of payments

4. Period of repayment

5. Dollar Amount of any finance charge

Regulation Z

Federal regulations that implement the Truth-in-Lending Act

The Truth in Lending Law or Regulation Z.

Requires lenders to disclose to buyers the true cost of obtaining credit so that the borrower can compare the costs of various lenders.

Annual Percentage Rate (APR)

Calculated under the federal Truth in Lending Act by combining the interest rate with other cost of the loan.

Fact must be stated.

If the annual percentage rate (APR) being offered is subject to increase after the transaction takes place (such as with an adjustable rate mortgage), that?

Finance Charge

The total amount the credit will cost over the life of the loan.

Who must comply with lending disclosures?

Any person or firm that regularly consumer credit subject to a finance charge or payable by written agreement in more than four installments must comply with the lending disclosures.

Exempt Transactions

Certain transactions are exempt from the lending disclosure requirement. The first exemption is for credit extended primarily for business, commercial, or agricultural purpose.

Any person or firm that regularly extends consumers credit subject to a finance charge (such as interest) or payable by written agreement in more than how many installments?

Four Installments MUST comply with the lending disclosures.

If the FTC (Federal Trade Commission) determines that an advertiser has broken the law, it can?

Order the advertiser to cease from further violations.

Right to Rescission

The borrower's right to cancel certain refinance transactions. Under the Truth in Lending Act, this right lasts for 3 business days, including Saturdays but not including Sundays or legal holidays.

If the appraised value is lower than the purchase period, and the buyer wishes to continue the transaction, they may do:

1. Pay the difference in sales price and apprised price at closing.

2. Rescind the contract

3. Renegotiate the price with the seller

What is proposed monthly housing expense compared with?

Gross monthly income

Liquid Assets

An asset that is in cash or is readily convertible to cash

ILLliquid

Describes an asset that cannot be quickly converted into cash without much loss of value.

Cash Value

The amount received after giving up a life insurance policy

Face Amount

The amount that would be paid in the event of the insured's death.

Lenders feel most comfortable if the face amount of the policy?

Equals or exceeds the amount of the proposed loan.

The applicant will be asked to make a declaration concerning any situations that would reasonably call into question?

The applicants ability to repay the loan, if approved.

Redlining

A lender's refusal to make loans in certain neighborhoods.

True of False

Loan to Value ratios above 80% present more risk of default to the lender.

True

Credit Report

A report reflecting the creditworthiness of a borrower by showing past credit history

Fair Credit Reporting Act

Federal law giving an individual the right to inspect his or her file with the credit bureau and correct any errors

Fair Isaac Corporation (FICO)

The originator of the concept of credit score

FHA uses a credit scoring procedure called "TOTAL" an acronym for?

Technology Open to Approved Lenders.

Technology Open to Approved Lenders (TOTAL)

The program assesses credit worthiness for FHA borrowers to accurately predict the likelihood of a borrower default.

Subprime Loan

A type of loan offered at a higher rate to individuals who do not qualify for prime rate loans.

These loans have risked- based pricing, which is reflected in the higher interest rates.

Predatory Lending

Lenders who are taking advantage of borrowers lack of knowledge