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CHAPTER 18 CONSUMER LOANS, CREDIT CARDS, AND REAL ESTATE LENDING Goal of This Chapter : To learn about the many types of loans lenders make to consumers (individuals and families) and to real estate borrowers and to understand the factors that influence the profitability and risk of consumer and real estate loans. In addition, the chapter examines how consumer and real estate loan rates may be determined and the options a loan officer has today in pricing loans extended to individuals and families. Key Topics in This Chapter Types of Loans for Individuals and Families Unique Characteristics of Consumer Loans Evaluating a Consumer Loan Request Credit Cards and Credit Scoring Disclosure Rules and Discrimination Loan Pricing and Refinancing Chapter Outline I. Introduction II. Types of Loans Granted to Individuals and Families A. Residential Mortgage Loans B. Nonresidential Loans 1. Installment Loans 2. Noninstallment Loans C. Credit Card Loans and Revolving Credit D. New Credit Card Regulations E. Debit Cards: A Partial Substitute for Credit Cards? 1. Debit Cards 2. Rapid Consumer Loan Growth Ill. Characteristics of Consumer Loans IV. Evaluating a Consumer Loan Application A. Character and Purpose B. Income Levels C. Deposit Balances D. Employment and Residential Stability E. Pyramiding of Debt F. How to Qualify for a Consumer Loan G. The Challenge of Consumer Lending V. Example of a Consumer Loan Application 247
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Credit-Scoring Consumer Loan Applications A. The Theory of Credit Scoring B. An Example of Credit Scoring C. The FICO Credit Scoring System VII. Laws and Regulations Applying to Consumer Loans A. Customer Disclosure Requirements 1. Truth in Lending Act 2. Fair Credit Reporting Act 3. Fair Credit Billing Act 4. Fair Credit and Charge-Card Disclosure Act 5. Fair Debt Collection Practices Act B. Outlawing Credit Discrimination 1. Equal Credit Opportunity Act 2. Community Reinvestments Act C. Predatory Lending and Subprime Loans VIII. Real Estate Loans A. Differences Between Real Estate Loans and Other Loans B. Factors in Evaluating Applications for Real Estate Loans C. Home Equity Lending IX. The Changing Environment for Consumer and Real Estate Lending X. Pricing Consumer and real Estate Loans: Determining the Rate of Interest and Other Loan Terms A. The Interest Rate Attached to Nonresidential Consumer Loans 1. The Cost Plus Model 2. Annual Percentage Rate 3. Simple Interest 4. The Discount Rate Method 5. The Add-On Loan Rate Method 6. Rule of 78s B. Interest Rates on Home Mortgage Loans 1. Fixed Rated Mortgages 2. Variable Rate Mortgages 3. Charging the Customer Mortgage Points XI. Summary of the Chapter Concept Checks 18-1. What are the principal differences among residential loans, nonresidential installment loans, noninstallment loans, and credit card or revolving loans? 248
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This note was uploaded on 08/06/2009 for the course BUSINESS 4444 taught by Professor Dr.dale during the Spring '09 term at University of Texas at Dallas, Richardson.

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