The upfront premium charged on an FHA mortgage transaction to protect a creditor in the event of borrower default is an example of:

The upfront premium charged on an FHA mortgage transaction to protect a creditor in the event of borrower default is an example of:
A . optional credit life insurance.
B . force-placed hazard insurance.
C . government mortgage insurance.
D . private mortgage insurance

View Answer

Answer: C

Explanation:

The upfront premium charged on an FHA mortgage is an example of government mortgage insurance.

This upfront mortgage insurance premium (UFMIP) is required for FHA loans and protects the lender (creditor) in the event of borrower default. FHA loans are insured by the Federal Housing Administration (FHA), a government agency.

Private mortgage insurance (D) is used for conventional loans, while optional credit life insurance (A) and force-placed hazard insurance (B) are unrelated to FHA loans.

References:

FHA Single Family Housing Policy Handbook

HUD Guidelines on UFMIP