P3-30 quiz

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Question 1 of 10

1. Question
Why is a wide spread between the introductory rate and the fully indexed rate a concern for payment option ARMs?
- A) It increases the likelihood of negative amortization, payment shock, and early recasting
- B) It reduces the lender’s yield on the loan
- C) It guarantees that the loan will prepay early
- D) It eliminates the need for mortgage insurance
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Question 2 of 10

2. Question
When setting introductory interest rates on nontraditional mortgage products, what should institutions aim to minimize?
- A) The number of product disclosures required at closing
- B) The lender’s cost of funds
- C) Disruptive early recastings and extraordinary payment shock
- D) The appraisal review process
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Question 3 of 10

3. Question
Why must an institution consider the spread between the introductory and fully indexed rate when developing nontraditional mortgage terms?
- A) It determines the borrower’s closing costs and title fees
- B) It influences the risk of negative amortization and payment shock for the borrower
- C) It sets the required level of property insurance coverage
- D) It dictates the length of the borrower’s escrow period
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Question 4 of 10

4. Question
Mortgage programs that target subprime borrowers through tailored marketing and underwriting standards must follow which guidance?
- A) Only the institution’s internal pricing guidelines
- B) RESPA servicing-transfer guidance
- C) HMDA disclosure and reporting guidance
- D) Applicable interagency guidance on subprime lending
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Question 5 of 10

5. Question
What is a key risk when layering nontraditional features in loans made to subprime borrowers?
- A) It guarantees the borrower will refinance with the same institution
- B) It reduces the need for income verification
- C) It can significantly increase risk for both the institution and the borrower
- D) It automatically qualifies the loan for government insurance
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Question 6 of 10

6. Question
Borrowers financing non-owner-occupied investment properties should qualify for loans based on:
- A) Their ability to service the debt over the full life of the loan
- B) Expected appreciation of the investment property
- C) The property’s current tax-assessed value alone
- D) The borrower’s history of speculative investing
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Question 7 of 10

7. Question
Loan terms for non-owner-occupied investor loans should reflect a combined LTV ratio that:
- A) Ignores potential for negative amortization
- B) Considers potential negative amortization and maintains sufficient borrower equity
- C) Is based only on the purchase price without regard to loan features
- D) Is set solely by secondary market investor demand
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Question 8 of 10

8. Question
Why must underwriting standards for non-owner-occupied investor loans consider the possibility of extended property vacancy?
- A) Vacancies reduce the borrower’s property tax obligations
- B) Vacancies guarantee that insurance claims will be paid
- C) Vacancies increase the property’s appraised value
- D) Vacancies reduce rental income and may impair the borrower’s ability to service the loan
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Question 9 of 10

9. Question
Underwriting standards for investor loans should require evidence that the borrower has:
- A) A home warranty and landlord insurance
- B) Sufficient cash reserves to service the loan under varying conditions
- C) A long-term lease signed before closing
- D) A property manager under contract for at least 10 years
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Question 10 of 10

10. Question
ARM payments based on very low introductory rates may lead to which of the following outcomes?
- A) Negative amortization, severe payment shock, and early recasting of payments
- B) Elimination of future rate adjustments
- C) Lower long-term debt service for the borrower
- D) Automatic conversion to a fixed-rate loan without underwriting
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