Finance
When a lender 'sells' a loan in the secondary market, what does the original lender typically retain?
AAll interest income from the loan
BThe servicing rights, earning servicing fees on the sold loan✓ Correct
CTitle to the property as security
DThe right to foreclose if the borrower defaults
Explanation
When a lender sells a loan to the secondary market (Fannie Mae, Freddie Mac, etc.), they typically retain the servicing rights — the right to collect monthly payments and manage the loan.
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Key Terms to Know
Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
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