Finance
A Washington lender offers a 'portfolio loan' that does not conform to Fannie Mae/Freddie Mac guidelines. Portfolio loans are retained by the originating lender on their own books. This means the lender:
ACan charge unlimited interest rates
BHas more flexibility in underwriting but retains all the credit risk✓ Correct
CDoes not need to comply with federal lending regulations
DMust get FHA insurance on all portfolio loans
Explanation
Portfolio loans are originated and held by the lender rather than sold to the secondary market. The lender retains the credit risk, which allows more underwriting flexibility (such as unique property types, complex income situations) but also means the lender bears losses if borrowers default.
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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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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.
Math Concepts
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