An FHA borrower must pay a mortgage insurance premium (MIP). What is the purpose of FHA mortgage insurance?
Correct Answer
A) To protect the lender against loss in case the borrower defaults on the loan
FHA mortgage insurance protects the lender, not the borrower, against financial loss if the borrower defaults on the loan. It allows lenders to offer loans with lower down payments because the insurance reduces the lender's risk.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
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