Term
ABC National Bank regularly purchases mortgage loans from ACME Mortgage Company, a local mortgage broker. ACME places a mandatory arbitration clause in each if its mortgage documents. ACME believes this clause is necessary because of state laws governing arbitration. Is this clause a problem for ABC National?
A. No, unless other predatory or abusive lending practices are evident in the loans sold by ACME
B. Yes, the clause is a sign of an abusive lender, and the bank should not purchase the loans
C. Yes, the bank should make ACME strike the clause from future loans
D. No, this is a common practice and the bank can ignore it |
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Definition
A. No, unless other predatory or abusive lending practices are evident in the loans sold by ACME
OCC-AL 2003-2
As noted in the outline, use of mandatory arbitration clauses may be a signal that an institution is marketing predatory or abusive loans. However, such clauses are not unfair in and of themselves. In the case of ACME and ABC National Bank, the use of mandatory arbitration clauses does not, in and of itself, indicate a problem. |
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Term
The OCC recommends all but one of the following actions to help prevent a national bank's purchasing or acquiring predatory or abusive loans. Which practice is NOT recommended?
A. Establish policies on the bank's relationship with thirdy-party brokers and originators
B. Review loan documentation
C. Audit the third-party broker
D. Require the broker to establish a reserve account for legal contingencies |
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Definition
D. Require the broker to establish a reserve account for legal contingencies
OCC-AL 2003-3 |
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Term
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?
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 |
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Definition
A. Risk management procedures to measure the risk of all simultaneous second lien loans and report results to management
The bank should make sure management is aware of the risk of its nontraditional mortgage portfolio, segmented by product. |
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Term
According to the 2007 interagency statement on subprime mortgage lending, what should an institution offering mortgage loans to subprime borrowers provide before submission of an application?
A. Information on local residential real property values
B. Payment shock information
C. Truth in Lending disclosures
D. Initial escrow statements |
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Definition
B. Payment shock information
Interagency Statement on Subprime Mortgage Lending |
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Term
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 consumers, including subprime borrowers. Under the statement on subprime mortgage lending, which of the following is the best statement of the bank's responsibility regarding the new program?
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 |
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Definition
B. The bank should make a policy for this program that includes mitigating factors for the risks
Interagency Statement on Subprime Mortgage Lending |
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