In a Price Risk Situation If Customers Withdraw Their Applications

question 261

Multiple Choice

In a price risk situation if customers withdraw their applications a bank may be unable to originate enough loans to meet its forward sales commitments .Because of this kind of "Fallout" a bank may have to purchase additional loans in the secondary market at prices higher than anticipated. Alternatively, a bank may choose to liquidate its commitment to sell and deliver mortgages by paying a fee to the counterparty commonly called a ______________.

• A) Settlement
• B) Pair-off arrangement
• C) End of loan settlement
• D) None of these

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Definitions:

Bonds Payable

Long-term liabilities representing a company's commitment to pay a specified amount of money at certain future dates for funds borrowed.

Interest Expense

The expense an entity faces for using borrowed capital, recorded as a non-operating cost on the income statement.

Income Statement

A financial statement that shows a company's revenues, expenses, and profits over a specific period, reflecting its financial performance.

Effective Interest Rate

The actual return on an investment or the actual cost of a loan, taking into account the effect of compounding interest.