Question

The introductory statement on the Replacement Reserve Schedule of the Fannie Mae/ Freddie Mac Form 216/998 Operating Income Statement specifies that adequate replacement reserves must be calculated

A. at the sole discretion of the lender's underwriter
B. only when actual reserves have historically been set aside for the property
C. when the property has any component with less than five years of remaining life
D. whether the owner is currently setting them aside or they are customary in the local market

Answer 1

Adequate replacement reserves, as mentioned in the Fannie Mae/ Freddie Mac Form 216/998 Operating Income Statement, must be calculated based on whether the property owner is currently setting them aside or if setting reserves aside is customary in the local market.

Step-by-step explanation:

The question is regarding the adequate calculation of replacement reserves on the Fannie Mae/ Freddie Mac Form 216/998 Operating Income Statement. The correct answer is D: whether the owner is currently setting them aside or they are customary in the local market. Replacement reserves are funds set aside to ensure the maintenance and repair of property components with a limited remaining life. These reserves are calculated based on several factors including, but not limited to, local market customs and current practices of the property owner, rather than being solely at the discretion of the lender's underwriter or based only on historical precedence.

Reserve requirements stipulated by the Federal Reserve are also relevant to this discussion. Reserve requirements refer to the amount of funds that banks must hold in reserve against deposit liabilities. These requirements ensure that banks maintain a buffer of funds to meet depositors' withdrawal demands or other obligations.