Certified Regulatory Compliance Manager (CRCM) — Question 97

Second State Bank offers a mortgage product that involves simultaneous second lien loans. These include a first lien for up to 90 percent of the purchase price and a second loan for the down payment, secured by a second lien on the property. The bank would like to be in full compliance with the Interagency Guidance on
Nontraditional Mortgage Product Risks. Which of the following should Second State Bank incorporate into its loan program?

Answer options

• A. Risk management procedures to measure the risk of all simultaneous second lien loans and report results to management
• B. A 100 percent loan loss reserve on all simultaneous second lien loans
• C. A product combining simultaneous second lien loans with negative amortization features made to nonowner occupied borrowers
• D. A prepayment penalty on all simultaneous second lien loans

Correct answer: A

Explanation

The correct answer is A because implementing risk management procedures allows the bank to assess and communicate the risks associated with simultaneous second lien loans effectively. Options B, C, and D do not align with the guidance as they either impose excessive financial reserves, create complex loan products that increase risk, or add penalties that may deter borrowers.