CRCM

CRCM practice questions, page 7 of 19, with answer review and explanations.

Question 31

Which of the following comes under the heading of nontraditional mortgage product risks?

  1. Reduced documentation adds risk to a mortgage loan. Institutions may rely on reduced documentation in the credit underwriting process. Income and credit verification may not be obtained. Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises
  2. Reduced documentation adds risk to a mortgage loan. Institutions may rely on reduced documentation in the credit underwriting process. Income and credit verification may not be obtained. Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises
  3. Perform due diligence before entering into third-party relationships, including a review of the third party's General competence Business practices and operations Reputation Financial capacity Internal controls Record of compliance with laws
  4. Amounts credited as recovery on a loan must not exceed all principal, finance charges, and fees previously charged off. Amounts that exceed these must be credited as income

Question 32

In Guidance on Nontraditional Mortgage Product Risks, if the institution has a concentration in a nontraditional mortgage portfolio, the institution should:

  1. Have well-developed monitoring systems and risk management practices
  2. Monitor by originator and key borrower and portfolio characteristics
  3. Not understand the risk of payment shock and negative amortization
  4. A and B

Question 33

If the institution offers both full and reduced documentation loans and there is a pricing premium attached to the reduced documentation loan, the consumer should:

  1. Be alerted to this fact
  2. Not be alerted to this fact
  3. Provide consumers with a clear statement of the options available
  4. Not lead consumers with payment option ARMs to choose a non-amortizing or negatively amortizing payment

Question 34

Institutions that offer nontraditional mortgage products should make sure they comply with the following, as applicable, EXCEPT:

  1. Truth in Lending Act
  2. FTC Act (i.e., Unfair and Deceptive Acts and Practices)
  3. RESTA
  4. State laws prohibiting deceptive trade practices

Question 35

Underwriting standards in Subprime Mortgage Lending include:

  1. The borrower's debt-to-income ratio should include the borrower's total yearly housing-related payments as a percentage of gross monthly income
  2. Institutions should have a clear policy governing the use of risk-layering features, such as reduced documentation loans or simultaneous second lien mortgages
  3. Stated income and reduced documentation loans to subprime borrowers should be made only if there are clear, documented mitigating factors
  4. Mitigating factors should be present when risk layering features are combined in order to support the underwriting decision and the borrower's repayment capacity