In Guidance on Nontraditional Mortgage Product Risks, if the institution has a concentration in a nontraditional mortgage portfolio, the institution should:
In Guidance on Nontraditional Mortgage Product Risks, if the institution has a concentration in a nontraditional mortgage portfolio, the institution should:
If an institution has a concentration in a nontraditional mortgage portfolio, it should have well-developed monitoring systems and risk management practices, and also monitor by originator and key borrower and portfolio characteristics. This combination ensures a comprehensive approach to managing the inherent risks in nontraditional mortgage products.
A, page 36. Option B follows under the "third-party originations" section.
If an institution has a concentration in nontraditional mortgage products, it should have well-developed monitoring systems and risk management practices (option A) and also monitor by originator and key borrower and portfolio characteristics (option B) to effectively manage and mitigate the risks associated with these products. Understanding the risks of payment shock and negative amortization is crucial, making option C incorrect because institutions should indeed understand these risks, not disregard them.