Financial Intermediaries Typically Require Mortgage Borrowers to Have Homeowner's Insurance

question 50

Multiple Choice

Financial intermediaries typically require mortgage borrowers to have homeowner's insurance and do credit checks before making the loan.

• A)The insurance requirement and the credit check are both designed primarily to reduce adverse selection.
• B)The insurance requirement and the credit check are both designed primarily to reduce the risk of moral hazard.
• C)The insurance requirement is designed primarily to reduce adverse selection;the credit check is designed primarily to reduce the risk of moral hazard.
• D)The insurance requirement is designed primarily to reduce the risk of moral hazard;the credit check is designed primarily to reduce adverse selection.

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Definitions:

Lockbox System

A service offered by banks to companies for the receipt of payment from customers, involving the collection of payments directly at a postal box and swiftly depositing them into the company's bank account.

Treasury Bills

Government-issued securities with maturity of up to a year, offered below their nominal value.

Collection Time

The duration it takes for a business to receive payments owed by its customers after a sale has been made.

Collection Float

The time delay between when a check is written and when the funds are actually deducted from the payer's account.