Despite the risks that are inherent in the mortgage lending process,mortgage bankers have various tools at their disposal to hedge risk exposure.For example,since mortgage bankers know that only part of the loan commitments that they issue will be taken down by borrowers,they can purchase the right to sell a certain dollar amount of a certain loan type in the secondary market through what is commonly referred to as a:

Question

Quizplus · Accepted Answer

A standby forward commitment allows mortgage bankers to hedge their risk by purchasing the right to sell a certain dollar amount of a certain loan type in the secondary market at a future time. This allows them to lock in a price and mitigate the risk of fluctuations in the market. Mortgage pipeline refers to the process of originating and processing loans. Conduit refers to a channel through which loans are packaged and sold in the secondary market. Collateral refers to assets that can be used to secure a loan. While these tools can also be used to manage risk exposure, they are not specifically designed for hedging against the risk of loan commitments not being taken down by borrowers.

Despite the Risks That Are Inherent in the Mortgage Lending