A designated loan has an outstanding principal balance of $180,000. The maximum NFIP coverage available for the building type is $250,000, and the building's insurable value is sufficient. What is the minimum required coverage under the lesser-of calculation?
Correct Answer
C) $180,000
Why this is correct: The minimum required flood insurance coverage is the lesser of: 1) the outstanding principal balance of the loan ($180,000), 2) the maximum NFIP coverage available ($250,000), and 3) the insurable value of the building. Comparing the three figures, $180,000 (the outstanding balance) is the lowest amount and therefore the controlling minimum. Why the other choices are wrong: The amount "$70,000" is wrong because it is not derived from any of the three comparison figures. The amount "$250,000" is wrong because it is the maximum available coverage, not the lesser amount in this scenario. The statement "The full appraised land-and-building value" is wrong because the calculation is based on the building's insurable value, not the total land-and-building appraised value. Exam tip: For the "lesser-of" calculation, always identify the smallest number among the three specified amounts (principal balance, max NFIP coverage, insurable value).
Why This Is the Correct Answer
Why this is correct: The minimum required flood insurance coverage is the lesser of: 1) the outstanding principal balance of the loan ($180,000), 2) the maximum NFIP coverage available ($250,000), and 3) the insurable value of the building. Comparing the three figures, $180,000 (the outstanding balance) is the lowest amount and therefore the controlling minimum. Why the other choices are wrong: The amount "$70,000" is wrong because it is not derived from any of the three comparison figures. The amount "$250,000" is wrong because it is the maximum available coverage, not the lesser amount in this scenario. The statement "The full appraised land-and-building value" is wrong because the calculation is based on the building's insurable value, not the total land-and-building appraised value. Exam tip: For the "lesser-of" calculation, always identify the smallest number among the three specified amounts (principal balance, max NFIP coverage, insurable value).
More Federal Laws Questions
Before the team acts on a production meeting, a training manager must address SCRA Interest Rate Cap. Which response is most defensible?
A team member asks about RESPA Kickbacks and Referrals in an investor-delivery review while trying to confirm the rule-based response. Which response should the loan team use?
During a disclosure desk review, the loan team encounters an RESPA Servicing Transfer issue. Which response should avoid a shortcut that would misapply the rule?
A disciplinary-risk review raises a question about TILA APR and finance-charge rules. Which action should the renewal specialist recommend?
An MLO is reviewing procedures for a case where a compliance analyst asks why covered mortgage application data is collected. What is the proper handling?
A completed application arrives on 4 May. The lender declines it on 20 May and posts the notice on 8 June.
A lender mails the loan estimate on Monday 8 June rather than delivering it in person. Consummation is set for Friday 19 June.
A consumer complaint response raises a question about GLBA privacy requirements. Which action should the state compliance officer recommend?
Before the team acts on a branch training session, a policy analyst must address RESPA Servicing Transfer Notice. Which response is most defensible?
A training manager is resolving RESPA Referral Fees during an internal audit sample. Which action best fits the rule?
People Also Study
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
A record-retention audit raises a question about HOEPA high-cost mortgage rules. Which action should the sponsorship reviewer recommend?
Next Question
During a disclosure desk review, a risk reviewer encounters a TILA Advertisement Requirements issue. Which response should select the answer that fits the governing requirement?