Certified Regulatory Compliance Manager (CRCM) — Question 32

Which of the following comes under the heading of nontraditional mortgage product risks?

Answer options

• A. Reduced documentation adds risk to a mortgage loan. Institutions may rely on reduced documentation in the credit underwriting process. Income and credit verification may not be obtained. Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises
• B. Reduced documentation adds risk to a mortgage loan. Institutions may rely on reduced documentation in the credit underwriting process. Income and credit verification may not be obtained. Use of reduced documentation should be subject to clear policies that require more documentation when the credit risk rises
• C. Perform due diligence before entering into third-party relationships, including a review of the third party's General competence Business practices and operations Reputation Financial capacity Internal controls Record of compliance with laws
• D. Amounts credited as recovery on a loan must not exceed all principal, finance charges, and fees previously charged off. Amounts that exceed these must be credited as income

Correct answer: A, B

Explanation

Options A and B accurately describe the risks of relying on reduced documentation in mortgage loans, which can lead to insufficient income and credit verification. Both options emphasize the need for policies to mitigate these risks when credit risk increases. Options C and D address different topics related to third-party relationships and loan recovery amounts, which do not pertain to nontraditional mortgage product risks.