CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

Which statement is FALSE?

A. The recourse/non-recourse feature of a mortgage has implications for projecting the likelihood of defaults by borrowers.
B. Borrowers almost always favor non-recourse mortgages.
C. In a non-recourse mortgage, the lender is not allowed to seize the underlying property when the borrower fails to make contractual payments.
Correct Answer: C

In both recourse and non-recourse mortgages the lender would be able to seize and sell the underlying property to pay off the loan if the borrower defaults. The difference between the two types appears if money is still owed after the collateral is seized and sold. A non-recourse loan limits the rights of a lender in a foreclosure to the proceeds from the sale of the underlying property (i.e., the lender can only look to the underlying property to recover the outstanding mortgage and has no further claim against the borrower).

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