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P3-32

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Question 1 of 9

1. Question

Why is active portfolio management especially important for institutions with nontraditional mortgage portfolios?

Because these loans always have fixed interest rates.
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Because they may contain higher-risk features and require ongoing monitoring of concentrations and performance.
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Because they eliminate the need for underwriting.
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Because regulators prohibit portfolio monitoring.
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Question 2 of 9

2. Question

What is one key expectation for institutions that originate or invest in nontraditional mortgage loans?

Avoid all third-party originations.
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Maintain strong portfolio and risk management practices.
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Eliminate compliance reviews.
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Limit lending to owner-occupied properties only.
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Question 3 of 9

3. Question

Which of the following is a required element of written policies for nontraditional mortgage products?

Procedures for monitoring compliance with underwriting standards and exceptions.
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Guaranteed approval standards.
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A requirement to sell all loans immediately.
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Elimination of audit reviews.
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Question 4 of 9

4. Question

What is the primary purpose of enhanced performance measures and management reporting for nontraditional mortgage portfolios?

To reduce employee training costs.
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To identify and monitor portfolio concentrations, trends, and emerging risks.
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To eliminate regulatory oversight.
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To increase loan fees.
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Question 5 of 9

5. Question

Allowance for loan and lease losses (ALL) levels for nontraditional mortgages should take into account:

Only current interest rates.
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Only the number of loans originated.
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Borrower income growth projections.
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The collectibility and risk characteristics of the portfolio.
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Question 6 of 9

6. Question

Capital levels for institutions with nontraditional mortgage portfolios should be maintained at levels that:

Are lower than industry averages.
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Remain fixed regardless of portfolio risk.
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Are commensurate with the risk of the portfolio.
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Depend only on loan volume.
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Question 7 of 9

7. Question

According to the guidance, policies for nontraditional mortgage lending should set acceptable levels of risk through:

Written limits, underwriting standards, and monitoring procedures.
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Verbal instructions from loan officers.
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Marketing campaigns.
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Borrower self-certification.
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Question 8 of 9

8. Question

How should an institution address growth and volume in nontraditional mortgage products?

Ignore growth if profits are increasing.
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Monitor growth and concentrations to ensure risks remain within policy limits.
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Stop offering all nontraditional products.
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Focus only on geographic concentrations.
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Question 9 of 9

9. Question

Institutions with concentrations in nontraditional mortgage products should have:

Strong management information systems, monitoring, and risk controls.
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No special controls.
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Only annual reviews.
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Fewer compliance procedures than traditional mortgage portfolios.
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