Credit & Lending Solutions for Private Clients Flashcards
7 cards from real CPB practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Credit & Lending Solutions for Private Clients flashcards as text
What is a jumbo mortgage in the context of private banking?
Answer: A home loan that exceeds conforming loan limits set by Fannie Mae and Freddie Mac
A jumbo mortgage is a non-conforming loan exceeding the maximum limits established by Fannie Mae and Freddie Mac, commonly used by high-net-worth individuals purchasing luxury real estate.
What is the primary purpose of a bridge loan in private banking?
Answer: To provide short-term financing until permanent funding is secured
A bridge loan provides temporary, short-term financing to span the gap between an immediate funding need and permanent financing, such as during a property transition.
Which of the following best describes an interest-only loan structure?
Answer: The borrower pays only interest during a set period, with principal due at or after that period
An interest-only structure requires only interest payments during a specified period, leaving the full principal outstanding and typically due at term-end or when the structure converts to amortizing.
What is an art-secured loan in private banking?
Answer: A credit facility where authenticated fine art or collectibles are pledged as collateral
An art-secured loan is a specialized credit product where fine art or collectibles are pledged as collateral, providing liquidity without requiring the client to sell the artwork.
What is the key risk for a private bank when extending unsecured personal credit to high-net-worth clients?
Answer: Counterparty risk if the client's financial condition deteriorates with no collateral to recover
Unsecured credit carries counterparty risk because the bank has no specific collateral to seize upon default, relying entirely on the client's ongoing creditworthiness for repayment.
What is a revolving credit facility?
Answer: A credit line that can be drawn, repaid, and redrawn repeatedly up to the approved limit
A revolving credit facility allows the borrower to draw funds, repay them, and redraw again multiple times up to the credit limit, providing highly flexible ongoing liquidity management.
In private banking lending, what is a 'haircut' applied to collateral?
Answer: A percentage reduction applied to the market value of collateral to determine the maximum lendable amount
A haircut is a percentage reduction applied to pledged assets' market value to account for liquidity risk, price volatility, and potential forced-sale losses, yielding a conservative lendable amount.