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Real Estate > Chapter 12 - The Loan and the Consumer > Flashcards

Chapter 12 - The Loan and the Consumer Flashcards

1
Q

Truth in Lending Act

A

A federal law that requires certain disclosures when extending or advertising credit
- Requires that borrower be clearly shown before commiting to the loan how much is being paid for credit in both dollar terms and percentage terms
- Borrower is given the right to cancel the transaction in certain instances

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2
Q

Regulation Z

A

Federal Regulations that implement the enforcement of the Truth-in-Lending Act requiring lenders to show borrowers how much they are paying for creidt

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3
Q

Trigger Terms

A

1) The amount of down payment
- 5% down, $4,995 down, 95% financing
2) The amount of any payment
- Monthly payments of only $499, Buy now for less than $650 a month
3) The number of payments
- 36 monthly payment and you own it
4) The period of repayment
- 30 year financing
5) The dollar amount of any finance charge or the statement that there is no charge for credit
- Finance this for only $999, Pay no interest for 3 years

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4
Q

5 Disclosures needed if any trigger terms are used

A

1) The amount financed
2) The finance charge
3) The number, amount and frequency of repayments
4) The annual percentage rate
5) A statement that a security interest has been taken in the property purchased

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5
Q

Annual Percentage Rate (APR)

A

The annual percentage rate as calculated under the Truth-in-Lending Act by combining the interest rate with other costs of the loan

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6
Q

Loan Estimate Disclosure - 4 Items that must be displayed predominantly in the papers the borrower signs

A

1) The loan terms
2) The projected payments
3) The annual percentage rate
4) The cost of closing

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7
Q

Comply

A

Any person or firm that regularly extends consumer credit subject a financial charge (interest), or payable by written agreement in more than 4 installments
- Banks, Saving & Loans, Credit Union, Finance Companies

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8
Q

Finance Charge

A

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

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9
Q

Exemptions from Lending Disclosure Requirements

A
  • Credit extended primarily to business, commercial or agricultural purposes (Includes dwelling units)
  • Credit over $25,000 secured by personal property, unless the property is the principal residence of the borrower
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10
Q

Right to Cancel (Rescission)

A
  • Borrower has limited right to rescission in a credit transaction
  • Has 3 business days after signing loan papers (includes Saturday)
  • Does not apply to credit used for the acquisition or initial construction of one’s principal dwelling
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11
Q

Loan Application and Approval Requriements

A
  • Look at the property and proposed financing (determine fair market value and title condition/ Property is collateral)
  • Does the borrower have adequate funds for settlement?
  • Proposed use for the property (Owner-occupied will likely continue paying and not default
  • Borrower’s attitude towards proposed loan (Does borrower understand obligations being undertaken?
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12
Q

Equal Credit Opportunity Act

A

Prohibits discrimination based on age, sex, race or marital status
- Focus on job stability, income, adequacy, net worth and credit rating & how many dependents you have

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13
Q

Front End Ratio

A

Monthly housing expense PITI should not exceed 28-30% of gross monthly income

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14
Q

Back End Ratio

A

Fixed monthly expenses should not exceed 36% of income

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15
Q

Debt-to-Income Ratio

A

FHA recommends limit of 31% for front end ratio and 43% for back end ratio

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16
Q

Loan Efficient Mortgage (LEM)

A

Offered to home owners in urban areas to qualify for larger mortgage when they have significantly reduced transportation costs

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17
Q

Liquid Asset

A

Assets that is in cash or readily convertible to cash

18
Q

Illiquid Assets

A

Asset that may require months to sell and convert to cash

19
Q

Cash Value

A
  • Amount of money the policy holder would receive if the policy were surrendered to the insurance company
  • Amount the policy holder could borrow against the policy
20
Q

Face Amount

A

Amount that would be paid in the event of the insured’s death

21
Q

References

A

Lenders ask for references as an indicator for the future

22
Q

Red Lining

A

Lenders refusal to make loans in certain neighborhoods (can’t do this anymore)

23
Q

Loan-to-Value Ratio

A

The higher the down payment the lower the LTV ratio

24
Q

Uninsured Loan

A

Ideal LTV ratio on owner occupied property is 70% or less
70-80% considered acceptable (Puts lender at more risk)
Above 80% would present more risk (Lender will either increase interest rate of require insurance coverage

25
Q

Credit Report

A

Report reflecting the credit worthiness of a borrower by showing past credit history

26
Q

Fair Credit Reporting Act

A

Federal law giving an individual the right to inspect their file with the credit bureau and correct and errors

27
Q

Credit Score

A
  • Type of credit - 10%
  • Application for new credit - 10%
  • Length of credit history - 15%
  • Payment history - 35%
  • Amounts owed - 30%
28
Q

Consumer Financial Protection Bureau (CFPB)

A

Make markets for consumer financial products and services work for Americans

29
Q

CFPB Rules

A

1) Standards on “ability-to-repay” (ATR) and “qualified mortgages” (QM)
2) Changes in the Home Ownership and Equality Protection Act (HOEPA)
3) The escrow account requirements for higher-priced mortgage loans

30
Q

ATR Rules

A

Residential mortgage lender is prohibited from making mortgage loans unless it has made a reasonable good faith determination at or before consummation of the transaction that the borrower has a reasonable ability to repay

31
Q

Predatory Lending

A

1) Steering borrowers and buyers to high-rate lenders
2) Engaging in the practice of intentionally structuring high-cost loans with payment the borrower cannot afford
3) Falsifying loan documents
4) Making loans to mentally incapacitated homeowners
5) Forging signatures on loan documents
6) Changing the loan terms at closing
7) Requiring credit insurance
8) Falsely identifying loans as lines of credit or open-end mortgages
9) Increasing interest charges for loan payment when payments are late
10) Charging excessive prepayment penalties or excessive charges for preparing releases
11) Failing to report good payment on borrowers credit reports
12) Failing to provide accurate loan balance and pay off amounts (includes not responding in a timely manner to credit inquiries for payoff information)

32
Q

Mortgage Fraud

A
  • The “Flip”
  • The old swithc
  • The contractor’s scheme
  • The ultimate lie
  • The innocent “investor”
  • “Trust me”
  • Identity theft
  • Fake check/Fast closing
33
Q

The purposes of the federal Truth-in-Lending laws inculde

A

A requirement that creditors disclose the full cost of obtaining credit

34
Q

Regulations governing the administration of the Truth in Lending Simplification and Reform Act are implemented by

A

The federal Reserve board’s Regulation Z

35
Q

The annual percentage rate is made up of what?

A

The interest rate combined with the other costs of the loan

36
Q

A borrower does not have the right, under the Truth in Lending laws, to rescind a credit transaction for

A

the acquisition of the borrower’s principal dwelling

37
Q

As equity increases, the probability of default does what?

A

Diminishes. Insured loans are generally made at higher LTV ratios than uninsured. Previous defaults or repossessions are considered indications of a poor credit risk

38
Q

Generally, before a lender will approve a loan, the borrower must

A

Have sufficient finds for the down payment and state if they intend to occupy the property

39
Q

Assuming no loan insurance guarantee, a lender would most likely give its lowest interest rate on a loan to buy a

A

Owner occupied dwelling and the lower LTV ratio, the lower interest rate

40
Q

As a general rule of thumb regarding monthly housing expenses, the

A

housing expense should not exceed 28-30% of the gross monthly income

41
Q

A lender can legally discriminate in loan terms basked on the applicant’s

A

Intention to occupy (or not occupy) the mortgaged property

42
Q

The right of an individual to inspect their file at a credit bureau is found in the

A

Fair Credit Reporting Act

Real Estate (10 decks)

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