Mortgage Broker Licensing Practice Exam · Question
A mortgage broker is arranging a second mortgage for a client who is consolidating high-interest credit card debt. The first mortgage is with a major bank and is a collateral charge. The proposed private second mortgage includes a clause stating that if there's a default on the second mortgage, the second lender can also call the first mortgage into default. What specific risk mechanism is embedded in this scenario for the borrower and the first lender?
Cross-collateralization occurs when an asset (the property) is used to secure multiple loans, and a default on one loan enables the lender to call default on ot
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Question: A mortgage broker is arranging a second mortgage for a client who is consolidating high-interest credit card debt. The first mortgage is with a major bank and is a collateral charge. The proposed private second mortgage includes a clause stating that if there's a default on the second mortgage, the second lender can also call the first mortgage into default. What specific risk mechanism is embedded in this scenario for the borrower and the first lender?
Answer options: ✅ Cross-collateralization.
- Recourse lending.
- Subordination agreement.
- Collateral assignment.
Correct answer: Cross-collateralization.
Explanation: Cross-collateralization occurs when an asset (the property) is used to secure multiple loans, and a default on one loan enables the lender to call default on other loans secured by the same asset, potentially impacting the primary lender.
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Related Questions
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Question explanations
- What is the typical time frame for a mortgage agent to provide the required disclosure statement to a client?
- Funds received from a client or investor that the brokerage holds on their behalf must be deposited into:
- Ontario mortgage agents must complete which of the following at each licence renewal?
- Which entity is responsible for licensing and regulating mortgage brokers and agents in Ontario?
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