In Guidance on Nontraditional Mortgage Product Risks, If the Institution

question 53

Multiple Choice

In Guidance on Nontraditional Mortgage Product Risks, if the institution has a concentration in a nontraditional mortgage portfolio, the institution should:

• A) Have well-developed monitoring systems and risk management practices
• B) Monitor by originator and key borrower and portfolio characteristics
• C) Not understand the risk of payment shock and negative amortization
• D) A and B

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Definitions:

Response Time

The amount of time it takes for a system or individual to react to a given stimulus or request.

Objective Function

A mathematical formula used in optimization to define the goal that needs to be achieved, usually involving minimization or maximization.

Nonsmooth Optimization

An area of optimization dealing with problems that do not have continuous derivatives, often involving abrupt changes.

Fixed-Cost Problem

An issue in budgeting or economics where costs do not change with the level of production or activity.