What happens to the yield spread premium when a mortgage loan is sold in the secondary market?
Correct Answer
C) It is typically captured in the loan's sale price
When loans are sold in the secondary market, any yield spread premium (the value created by pricing the loan above par) is typically reflected in the price the investor pays for the loan. The economic benefit flows to whoever sells the loan.
Why This Is the Correct Answer
When loans are sold in the secondary market, any yield spread premium (the value created by pricing the loan above par) is typically reflected in the price the investor pays for the loan. The economic benefit flows to whoever sells the loan.
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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A borrower is purchasing a home for $300,000 with an FHA loan in an area where the loan limit is $350,000. The seller agrees to pay 4% in closing costs. What is the maximum amount the seller can contribute?
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