CAC Risk Analysis 2

Question 1

In auto lending, what does the payment-to-income (PTI) ratio measure?

Accepted Answer

The monthly vehicle payment divided by gross monthly income

Answer

PTI compares the proposed vehicle payment to the applicant's gross monthly income to gauge affordability.

Question 2

A contract with a loan-to-value (LTV) ratio of 125% indicates what?

Accepted Answer

The amount financed exceeds the vehicle's value by 25%

Answer

An LTV above 100% means the borrower starts with negative equity, raising loss severity on default.

Question 3

Expected credit loss on a loan is commonly estimated using which formula?

Accepted Answer

Probability of default x loss given default x exposure at default

Answer

Expected loss combines how likely default is, how much is lost if it happens, and the balance exposed.

Question 4

Which applicant characteristic generally signals greater stability and lower credit risk?

Accepted Answer

Five or more years at the same residence

Answer

Long time at residence is a traditional stability indicator associated with lower default rates.

Question 5

What is the purpose of vintage analysis in a loan portfolio?

Accepted Answer

To track the performance of loans originated in the same period over time

Answer

Vintage analysis groups loans by origination period so their delinquency and loss curves can be compared.

CAC - Certified Acceptance Corporation Professional Practice Test