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1 Chapter 12
CHAPTER 12: The Loan and the Consumer
I. Discuss the Truth in Lending Act, explain the
pplication
A. Advertising
B. Trigger Terms
C. Annual Percentage Rate
D. Lending Disclosures
E. Who Must Comply?
F. Exempt Transactions
G. Failure to Disclose
H. Right to Cancel
II. Loan Application and Approval
A. Adequate Funds for Settlement for
B. Purpose of the Loan
C. Borrower Analysis !lenders to
D. Monthly Income obtain forms for use in this exercise.
E. Assets and Liabilities
F. References
G. Redlining
H. Loan-to-Value Ratios
I. Credit Report
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Chapter 12 2
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187 195
187 196
188 196
189 197
189 197
Topic
Opening Remarks
Trigger Terms
Annual Percentage
Rate (APR)
Who Must Comply
Exempt Transactions
Teaching Tips
Start this chapter by reminding students that obtaining a
mortgage loan is more than having the title searched and the
house appraised. The borrowers must also meet certain credit
criteria, if they are to obtain a mortgage loan. This chapter will
discuss standard loan procedures as well as federal consumer
protection legislation.
Summary: If an ad contains any of the following, then disclosures
must be made:
1. Amount of Down Payment
2. Amount of Any Payment
3. Number of Payments
4. Period of repayment
5. Dollar Amount of Any Finance Charge
Required Disclosures:
1. Cash Price or Amount of Loan
2. Amount of Down Payment, or statement that there is none
3. Number, Amount, and Frequency of Repayments
4. Annual Percentage Rate (APR)
5. Deferred Payment Price or Total Payments
Local Distinction: Make a transparency using a display ad from
your local newspaper which has properly made disclosures. Often,
the trigger item is a monthly price, i.e., "Own your own family
home for only $695." Call this the asterisk law; find the disclosures
in the small, fine print at the bottom of the ad.
Example: Computing APRs with a financial calculator: The
monthly PI on a $90,000 loan 12% for 30 years is $926.10 (See
Table 11:1). Assuming there are only 3 discount points paid (and no
other costs), the APR is 12.42%.
$90,000 x 0.03 = $2,700
$90,000 - 2,700 = $87,300
Enter 87,300 as the (net) loan amount, $926.10 as the monthly
payment, 30 years as the term, and compute the new interest rate of
1.03 (per month) x 12 months =12.42.
Stress: Mortgage brokers and real estate agents are not creditors
and so are not required to make the disclosures. However, if a
broker takes back a note as part of his commission, then he must
make disclosures.
Summary: Business, Commercial, Agricultural transactions are
exempt as well as those secured by personal property with value in
excess of $25,000.
3 Chapter 12
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