银行管理(第六版)教师手册Chapter_17_IM_updates.pdf

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1、 231 CHAPTER 17 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

2、 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 Con

3、sumer 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

4、 2.Noninstallment Loans C.Credit Card Loans and Revolving Credit D.New Credit Card Regulations E.Debit Cards:A Partial Substitute for Credit Cards?Ill.Characteristics of Consumer Loans IV.Evaluating a Consumer Loan Application A.Character and Purpose B.Income Levels C.Deposit Balances D.Employment a

5、nd 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 VI.Credit-Scoring Consumer Loan Applications VII.Laws and Regulations Applying to Consumer Loans A.Customer Disclosure Requirements 1.Truth

6、in Lending Act 2.Fair Credit Reporting Act 232 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 3.Predatory Lending and Subprime Loans VIII.Real E

7、state 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 Lo

8、an 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.Use of Variable Rates on Consumer Loans C.Interest Rates on Home Mortgage Loans 1.Fixed Rat

9、ed Mortgages 2.Variable Rate Mortgages 3.Charging the Customer Mortgage Points D.Home Mortgage Refinancings and the Impact of Record Low Rates XI.Summary of the Chapter Concept Checks 17-1.What are the principal differences among residential loans,nonresidential installment loans,noninstallment loan

10、s,and credit card or revolving loans?Residential loans are credit to finance the purchase of a home or fund improvements on a private residence.Installment loans are paid off gradually over time whereas noninstallment loans are generally paid off in lump sum at the end of the loan.Installment loans

11、usually finance large-volume purchases,such as automobiles or household furniture,whereas noninstallment loans usually are directed at current living expenses.Installment loans help the bank recover funds that can be reloaned more quickly but they generally require a more intensive credit investigat

12、ion by the bank.Bank credit cards offer convenience and a revolving line of credit that the customer can access whenever the need arises.17-2.Why do interest rates on consumer loans typically average higher than on most other kinds of loans?233 Interest rates on consumer loans are typically higher t

13、han on most other kinds of loans since they are among the most costly and most risky to make per dollar of loanable funds.Consumer loans also tend to be cyclically sensitive.Moreover,consumers tend to be relatively unresponsive to changes in interest rates when they go out and borrow money.17-3.What

14、 features of a consumer loan application should a loan officer examine most carefully?A loan officer should examine character and purpose,income levels,deposit balances,employment and residential stability,and pyramiding of debt when evaluating a consumer loan application.17-4.How do credit scoring

15、systems work?Credit-scoring systems use statistical techniques(usually multiple discriminant analysis)to classify borrowers based on selected characteristics of each borrower as to whether they are likely or unlikely to repay the loan they have requested.17-5.What are the principal advantages to a l

16、ending institution of using a credit scoring system to evaluate consumer loan applications?The credit scoring method has the advantage of being objective,requiring less loan officer judgment,possibly lowering loan losses,and lowering operating costs when a large volume of consumer loans is processed

17、.17-6.Are there any significant disadvantages to a credit scoring system?Credit scoring systems do not take into account motivational factors or individual differences and may become outdated unless frequently retested for statistical accuracy.17-7.In the credit-scoring system presented in the chapt

18、er the loan applicant described would have the following credit score:Skilled worker 8 points Lives with friend or relative 2 Average credit rating 5 One year in current job 2 One year in current residence 1 Telephone in home 2 Number of Dependents:More than three 2 Bank Accounts Held:Checking Accou

19、nt only 2_ Total Score 24 points 234 Because this loan applicants criterion score is below 28 points the loan request is likely to be denied.17-18.What is FICO and what does it do for lenders?Why is this credit scoring system so popular today?FICO is a credit scoring system developed by Fair Isaac C

20、orporation.It is fast,objective and impartial and that makes it very useful for regulated financial institutions 17-9.What laws exist today to give consumers who are borrowing money fuller disclosure about the terms and risks of taking on credit?The following federal laws give consumers who are borr

21、owing money fuller disclosure about the terms and risks of taking on credit:a.Truth-in-Lending Act c.Fair Credit Billing Act b.Fair Credit Reporting Act d.Fair Debt Collection Practices Act The Truth-in-Lending Act makes household borrowers better informed about the terms of credit so they can shop

22、around.The Fair Credit Reporting Act gives individuals easier access to their credit-bureau records and the right to challenge information contained therein and to insist on the prompt correction of errors.The Fair Credit Billing Act gives consumers the right to dispute billing errors and have those

23、 errors corrected.The Fair Debt Collection Practices Act limits how far a creditor or credit collection agency can go in pressing that customer to pay up.17-10.What legal protections are available today to protect borrowers against discrimination?Against predatory lending?The Equal Credit Opportunit

24、y Act outlaws discrimination in lending based on race,age,sex,religious preference,receipt of public assistance,and similar factors.The Community Reinvestment Act requires banks and other lending institutions to make an affirmative effort to serve all segments of their designated market areas withou

25、t discriminating against certain neighborhoods.Predatory lending is an abusive practice among some lenders that consists of making loans to weak borrowers and then charging them excessive fees and interest rates,thereby increasing the risk of default.In 1994 Congress passed the Home Ownership and Eq

26、uity Protection Act which was aimed to protect home owners from loan agreements they could not afford.Loans whose APR is 10 percentage points or more above the yield on comparable Treasury securities are defined as abusive and consumers have 6 days in which to decide whether to proceed with the loan

27、.Credit granting institutions must fully disclose all fees and risks.If these are not disclosed,then the borrower has up to 3 years to rescind the transaction and lenders might be liable for all damages that occur.17-11.In your opinion,are any additional laws needed in these areas?235 This question

28、does not have a right or wrong answer.Depending on ones point of view,more or less regulation in these areas can be supported.Most,if not all,bankers and bank trade associations,as well as many of the regulatory agencies,tend to agree that there are already more than enough laws and regulations in t

29、hese areas.Consumer groups and some elected officials would argue that consumers,particularly in certain economic groups or communities,need more legislation and/or regulation to protect their interests.17-12.In what ways is a real estate loan unique compared to other kinds of bank loans?Real estate

30、 loans are longer-term than most other loans and usually involve above-average amounts of funds at risk.Moreover,they depend more heavily on the value and maintenance of collateral than most other types of loans.17-13.What factors should a banker or other lender consider in evaluating real estate lo

31、an applications?Among the factors to be considered in evaluating a real estate loan applications are:1.What is the borrowers monthly income and monthly debt repayments?The bank must be assured there is adequate cushion to comfortably absorb the home loan repayments.2.Does the borrower have good pros

32、pects for continued employment?Because the loan is long term the bank must have reasonable assurance the borrower can service a long-term loan.3.Is the current market value of the home to be purchased sufficiently larger than the amount of the loan to give the bank adequate cushion if local real est

33、ate values decline?17-14.What is home equity lending and what are its advantages and disadvantages for banks and other consumer lending institutions?Home-equity loans use the residual market value of a home(over and above the amount of any outstanding liens against the home)as a borrowing base.Finan

34、cial institutions often lend a fraction of this residual value,which subjects them to the risk that the market value of a home will fall,significantly eroding the cushion of protection for a loan of this type.If the customer fails to make any promised loan payments,the bank or other lender could for

35、eclose and take over the home to sell it and recover at least a portion of loaned funds.17-15.How is the changing age structure of the population likely to affect consumer loan programs?What other forces are reshaping household lending today?As people grow older,especially beyond the age of 40 or 45

36、,they tend to make less use of credit and to pay down outstanding debt obligations.This suggests that the total demand for consumer 236 credit per capita may fall,forcing banks and other consumer lenders to fight hard for profitable consumer loan accounts.17-16.What challenges have U.S.bankruptcy la

37、ws provided consumer lenders when it comes to liquidating the assets of defaulting borrowers?Recent changes in U.S.bankruptcy laws present serious challenges to consumer lending institutions.Congress passed the Bankruptcy Reform Act in 1978,amending a federal bankruptcy code that had stood since the

38、 turn of the century.While amendments in 1984 tightened up some of the loopholes in the 1978 law,the most recent reforms tipped the legal scales substantially in favor of individuals filing bankruptcy petitions and more severely limited the amount and kinds of debtors assets that could be converted

39、into cash for distribution to banks and other creditors.However,there is legislation making its way through Congress at the current time that may tip the scales back some.There is proposed legislation which will make it more difficult for businesses and consumers to discharge their debt.17-17.What o

40、ptions does a loan officer have in pricing consumer loans?Most consumer loans,like most business loans,are priced off some base or cost rate,with a profit margin and compensation for risk added on.The rate on a consumer loan may be figured from the cost-plus model or the base-rate model.Most install

41、ment and lump-sum payment loans are made with fixed interest rates.However,due to the volatility of interest rates in the 1 970s and 1980s,a greater number of floating rate consumer loans have appeared.17-18.Suppose a customer is offered a loan at a discount rate of 8 percent and pays$75 in interest

42、 at the beginning of the term of the loan.What net amount of credit did this customer receive?Suppose you are told that the effective rate on this loan is 12 percent.What is the average loan amount the customer had available during the year?The relevant formula is:Then the net amount of credit recei

43、ved must be$75/.08 or$937.50.Suppose you are told that the effective rate on this loan is 12 percent.What is the average loan amount the customer had available during the year?In this instance:Interest Owed$75 Effective loan ratio=Average Loan Amount During the Year=x=0.12 Discount Interest Owed$75

44、loan rate=Net Amount=x=0.08 of Credit Received 237 Then the average loan amount during the year must be:x=$75=$625.0.12 17-19.See if you can determine what APR you are charging a consumer loan customer if you grant the customer a loan for five years payable in monthly installments,and the customer m

45、ust pay a finance charge of$42.74 per$100.The terms quoted mean that the customer must pay an APR of 15 percent(using a financial calculator)17-20.If you quote a customer is quoted an APR of 16 percent on a$10,000 loan with a term of four years that requires monthly installment payments,what finance

46、 charge must this customer pay.The Finance charge per$100 of amount financed must be$36.03 or$36.03*100=$3603 in total finance charges.17-21.What differences exist between ARMs and FRMs?An ARM is a mortgage whose interest rate changes over time,usually based upon changes in some base or reference ra

47、te.A FRM is a mortgage whose interest rate does not change with current market conditions.17-22.How is the loan rate figured on a home mortgage loan?What are the key factors or variables?The best way to figure out the affordability of a home mortgage loan is to calculate the required monthly mortgag

48、e payment.This is a time value of money calculation and the payment depends upon the loan principal,the interest rate,and the length of the mortgage loan.17-23.What are points?What is their function?Points are an additional charge up front in which each point to be paid equals one percent of the fac

49、e value of the loan.Requiring the borrower to pay something extra over and above the interest owed on the loan,enable the lending institution to earn a higher effective interest rate.17-24.Why did home mortgage real estate loans soar to record levels as the 21st century opened?The main reason for th

50、e upsurge in real estate borrowing is the record low level in interest rates at the beginning of the century.This did not only spark a boom in new mortgage loans,but also in refinancing activities.In addition,interest expenses are fully tax deductible which cannot be said for other types of loans.23