A mortgage lender decides to keep loans in their portfolio rather than sell them. What is the primary risk they assume?
Correct Answer
B) Interest rate risk and credit risk
When lenders keep loans in portfolio, they assume both interest rate risk (if rates rise, the value of fixed-rate loans decreases) and credit risk (the risk of borrower default), rather than transferring these risks to secondary market purchasers.
Why This Is the Correct Answer
When lenders keep loans in portfolio, they assume both interest rate risk (if rates rise, the value of fixed-rate loans decreases) and credit risk (the risk of borrower default), rather than transferring these risks to secondary market purchasers.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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