Which of the following comes under the heading of nontraditional mortgage product risks?
A.
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
B.
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
C.
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
D.
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
This option directly addresses one of the nontraditional mortgage product risks by highlighting the danger of relying on reduced documentation in the underwriting process. Reduced documentation can lead to insufficient verification of a borrower's ability to repay, increasing the risk to the lender. Clear policies to require more thorough documentation when credit risk increases are recommended to mitigate this risk. The fact that A and B are identical indicates a focus on this specific risk in nontraditional mortgage lending. Option C refers to due diligence in third-party relationships, which, while important, is not directly about the inherent risks of nontraditional mortgage products themselves. Option D relates to the accounting for recoveries on loans, which is not directly related to the unique risks posed by nontraditional mortgage products.
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Cam22
4 months ago