I saw below question, and got confused with last tow options whether they are true.
A mortgage loan with an LTV of 98% is : a. Requires insurance b. high risk to bank c. sub prime mortgage d. alt a loan
I believe a mortgage loan with an LTV of 98% certainly requires insurance and has high risk to the bank.
Be careful not to add information into the question. There is neither a credit rating, nor an interest rate included, so I would rule out both C & D based on that.
Does it require insurance? Possibly. There may be regulations and/or covenants/clauses that help the borrower to qualify for the given LTV. None of that is touched on in the question though, so I would rule it out as well (unless it is specifically cited in the curriculum that an LTV > X% requires insurance).
The only thing I can say for sure is that having 98% of the value on credit is probably rather risky. That’s what I would answer.
What was cited as the correct answer?
What test are you taking? How old are the materials you are using?