Question

The loan-to-value ratio is an important underwriting criterion, for the primary reason that

A) It determines the borrower's creditworthiness.
B) It assesses the property's market value.
C) It calculates the risk of default.
D) The lender wants to ensure the loan is fully collateralized.

Answer 1

The loan-to-value ratio is an important underwriting criterion because it determines the risk of default. Lenders use the loan-to-value ratio to assess the risk of default and ensure that the loan is adequately collateralized.

Step-by-step explanation:

The loan-to-value ratio is an important underwriting criterion because it determines the risk of default (C). The loan-to-value ratio is a measure of the ratio between the loan amount and the appraised value of the property. A higher loan-to-value ratio indicates a higher risk of default, as the borrower has less equity in the property. Therefore, lenders use the loan-to-value ratio to assess the risk of default and ensure that the loan is adequately collateralized.