Certified Regulatory Compliance Manager (CRCM) — Question 35

Underwriting standards in Subprime Mortgage Lending include:

Answer options

• A. The borrower's debt-to-income ratio should include the borrower's total yearly housing-related payments as a percentage of gross monthly income
• B. Institutions should have a clear policy governing the use of risk-layering features, such as reduced documentation loans or simultaneous second lien mortgages
• C. Stated income and reduced documentation loans to subprime borrowers should be made only if there are clear, documented mitigating factors
• D. Mitigating factors should be present when risk layering features are combined in order to support the underwriting decision and the borrower's repayment capacity

Correct answer: A

Explanation

Option A is correct as it specifies that the debt-to-income ratio should account for all housing-related payments in relation to gross monthly income, which is a key underwriting standard. Options B, C, and D, while addressing important aspects of underwriting, do not directly relate to the calculation of the debt-to-income ratio as described in the question.