1. Which of the following terms describes the risk associated with the difficulty of selling a mortgage in the secondary market?
Default risk
Refinance risk
Prepayment risk
Liquidity risk
2. A borrower who lives in a recourse state buys a house for $275,000 and takes out a loan for $250,000 (senior mortgage) to finance this purchase. A few years after the original purchase, the outstanding loan balance is now $240,000 but the property value has declined and this borrower defaults on the loan and the property is sold in a foreclosure sale for $220,000. Can the lender seek a deficiency judgment against this borrower? If so, for how much?
Yes, $20,000
Yes, $25,000
Yes, $35,000
No, the lender may not seek a judgment.