Mortgage Risks and Risk Management
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Number 1. An individual mortgage which covers more than one property in terms of the underlying collateral that is pledged to indemnify a mortgage loan.
Correct Answer: Blanket Mortgage
Number 2. A situation which occurs when a lender specifies certain items for which a developer/borrower will be personally liable even though the overall loan will be treated as non-recourse debt. May also be used to describe situations in which minority stakes or interests are sold in the market, thus reducing the residual ownership position.
Correct Answer: Carve Out
Number 3. A restriction in a mortgage that restricts a borrower from pledging the property to secure any additional obligations.
Correct Answer: Closed-end Mortgage
Number 4. An asset which is pledged to indemnify a lender, investor or other third party in the event that some contract or agreement is breached and/or covenants are not satisfied. The collateral provides the security for the third party under the assumption they can claim their ownership position and recover potential losses if some trigger event occurs.
Correct Answer: Collateral
Number 5. In a loan or mortgage agreement, the endorsement or guarantee offered by a third party who is willing to backstop or assume co-liability for the financial obligation which may or may not involve a sharing of ownership interests or rights in the underlying property.
Correct Answer: Co-signing
Number 6. A term that refers to the highest priority of claim of the mortgage position; typically used in context with permanent loans which comprise the bulk of the debt, followed by additional loans and equity positions that are more junior.
Correct Answer: First Mortgage
Number 7. A professional evaluation of the condition of a home rendered by an inspector, undertaken to identify maintenance that should be completed to bring a house into compliance with building codes, to ensure that it is safe and habitable, and to identify latent defects or repairs.
Correct Answer: Home Inspection
Number 8. An insurance or warranty program that covers mechanical systems, appliances and other covered devices that are not typically covered by homeowner's insurance.
Correct Answer: Home Warranty
Number 9. A type of insurance that is issued to homeowner's to provide protection against damages to a property or its contents as well as protection against lawsuits or claims resulting from injuries to third parties resulting from negligence or other actions or property aspects that cause injuries or damages.
Correct Answer: Homeowner's Insurance
Number 10. A statement that indicates the outstanding balance and other payments that must be made to perfect a claim or release a lien.
Correct Answer: Lien Statement
Number 11. The actions extended by a lender to help a borrower who has been unable to make required payments avoid foreclosure on a mortgage.
Correct Answer: Loss Mitigation
Number 12. Insurance that is underwritten to protect a lender against losses in the event a borrower defaults on a mortgage obligation. In general, borrowers pay the premiums for such insurance to help reduce risk to third party lenders.
Correct Answer: Mortgage Insurance
Number 13. A lien that is created by a mortgage which pledges the underlying property as collateral to secure the attached promissory note.
Correct Answer: Mortgage Lien
Number 14. An insurance policy that pays off the outstanding principal balance in the event of the death of the insured party.
Correct Answer: Mortgage Life Insurance
Number 15. A contractual agreement in which additional collateral is pledged to provide security to cover an existing loan or to increase outstanding debt.
Correct Answer: Mortgage Spreading Agreement
Number 16. A written agreement that documents a debt obligation and provides a promise to make certain specified payments of principal and/or interest.
Correct Answer: Note
Number 17. A situation in which a lender that makes a forward commitment is exposed to interest rate risk if rates should rise between the time of commitment and closing.
Correct Answer: Pipeline Risk
Number 18. To secure a loan or contractual obligation by committing resources or assigning a claim against those resources to collateralize a loan or debt obligation.
Correct Answer: Pledge
Number 19. Mortgage insurance designed for the residential market that is offered by private companies.
Correct Answer: Private Mortgage Insurance (PMI)
Number 20. A risk management technique that is used to protect a mortgage applicant against unexpected increases in rates that may occur after a loan application is submitted but before closing (e.g., protected by a lock), or by a decrease in rates (e.g., a float-down clause).
Correct Answer: Rate Protection
Number 21. A type of loan in which a lender may look beyond the collateral that is pledged to the personal assets and other resources of a borrower or guarantor to recover damages in the event of default or breach of contract.
Correct Answer: Recourse Loans
Number 22. The aggregate value of assets a loan applicant certifies is available to make a downpayment and cover other closing costs.
Correct Answer: Stated Assets
Number 23. The explicit policy of a second or junior mortgage lender that allows refinancing of a first or senior mortgage without disturbing the subordinated loan or triggering acceleration and refinancing.
Correct Answer: Subordination Policy
Number 24. An inspection of a property which is conducted prior to a closing to ensure there are no unexpected damages and that the facilities are in the condition presumed in the negotiations and contract.
Correct Answer: Walk-through