Certified Regulatory Compliance Manager (CRCM) — Question 99

The senior lender at ABC bank would like to make stated income mortgage loans (i.e., loans where the bank does not verify the applicant's income) to mortgage customers, including subprime borrowers. Under the statement on subprime mortgage lending, which of the following is the best statement of the bank's responsibility regarding this new program?

Answer options

• A. Due to the risks, it should not implement such a program for subprime borrowers
• B. The bank should make a policy for this program that includes mitigating factors for the risks
• C. The bank should set stringent debt-to-income ratios for these loans
• D. The bank should establish workout procedures for such loans in advance of making them.

Correct answer: B

Explanation

The correct answer, B, emphasizes the importance of having a policy that includes mitigating factors to address the risks associated with lending to subprime borrowers. Answer A is incorrect because while caution is necessary, it does not address the potential for a responsible program. Option C is not the best answer as setting stringent ratios alone does not encompass comprehensive risk management. Choice D is also not the most suitable response as establishing workout procedures is a reactive measure rather than a proactive policy.