Consumer Lending Introduction
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3 Types of Loans Granted to Individuals & Families
1. Residential2. Non-Residentiala. Installmentb. Non-Installment3. Credit Card/Revolving
1. Residential?
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2. Non-Residentiala. Installmentb. Non-Installment
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3. Credit Card/Revolving?
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3 New Consumer Regulations?
1. CARD Act2. Dodd-Frank Act3. Revised Reg Z
New Credit Card Regulations
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1. CARD Act?
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CARD Act cont'd
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2. Dodd-Frank (Wall Street Reform) Act?
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Dodd-Frank (Wall Street Reform) Act cont'd
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Characteristics of Consumer Loans
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Why are interest rates so high on most consumer loans?
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Evaluating a Consumer Loan Application
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Basic Theory of Credit Scoring?Underlying Assumption?
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Using Credit Scoring Model (CSM)
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Using Credit Scoring Model (CSM)
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The FICO System
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Character and Purpose
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Laws and Regulations Applying to Consumer LoansTwo Categories?
1. Disclosure rules2. Anti-discrimination laws
4 Customer Disclosure (Acts) Requirements?2 (Acts) Outlawing Credit Discrimination?
1. TIL2. Fair Credit Reporting Act3. Fair Credit Billing Act4. Fair Debt Collection Practices Act1. Equal Credit Opportunity Act2. Community Reinvestment Act
Predatory Lending?Subprime Loans?
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Real Estate Loans
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Differences between Real Estate & Other Loans?
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Factors in Evaluating Real Estate Loans?
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Factors in Evaluating Real Estate Loans?
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Home Equity Lending?
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Controversial Home Loans - Mortgage Crisis
...of even modest means....by bringing the initial monthly payment down
Controversial Home Loans - Mortgage Crisis
...lower-income families... as interest rates rose and principal was added.
Lessons from Crisis
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A Revised Federal Bankruptcy Code as Bankruptcy Filings Soar
the Federal Bankruptcy Code was revised prior to Crisis
A Revised Federal Bankruptcy Code as Bankruptcy Filings Soar
new code makes harder to file Chapter 7
Pricing Consumer and Real Estate Loans: Determining the Rate of Interest and Other Loan Terms
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Determining the Rate of Interest and Other Loan Terms
with consumer loans the TIL loans require the APR
APR
APR Example (use time value money register on calculator)
Simple Interest Rate Formula
... in banking "simple interest" is when you pay interest just on the outstanding balance ... different than when used in (sometimes) used in corporate finance
2 Methods to Determining the Rate?
1. Discount Rate Method?2. Add-On Rate Method?
Discount Rate Method Ex 1
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Discount Rate Method Ex 2
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Add-On Rate Method?
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Rule of 78s (in consumer lending)
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Rule of 78s Example
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Interest Rates on Home Mortgage Loans
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Interest Rates on Home Home Mortgage Loans...Monthly Mortgage Payment Formula
... typically are treated as simple interest loans(can use calculator)
Mortgage Points
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Mortgage Points Example
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