Under what condition would it be acceptable for a mortgage adviser to recommend a sub-prime mortgage to a client with a good credit history?

Under what condition would it be acceptable for a mortgage adviser to recommend a sub-prime mortgage to a client with a good credit history?

• A. Only if the client will not be disadvantaged in comparison with a suitable standard mortgage.
• B. Only if the client has a history of defaults.
• C. Only if the client is high-net-worth.
• D. Sub-prime mortgages are never acceptable.

Answer: (A)

The key idea is suitability and treating the client fairly. A mortgage adviser must ensure that any recommendation serves the client’s best interests and isn’t more expensive or less favorable than what a standard, appropriate mortgage would offer. Sub-prime products are generally designed for higher-risk borrowers and tend to come with higher rates and fewer benefits. For a client with a good credit history, suggesting a sub-prime option would only be acceptable if it would not disadvantage them compared with a suitable standard mortgage. In other words, the overall cost and terms would have to be at least as favorable as a standard product, or there would be a compelling reason that makes the sub-prime choice no worse for the client than the standard alternative. In cases where the client’s situation clearly aligns with a standard mortgage, or the sub-prime option would put the client at a disadvantage, it would not be appropriate to recommend sub-prime.

The key idea is suitability and treating the client fairly. A mortgage adviser must ensure that any recommendation serves the client’s best interests and isn’t more expensive or less favorable than what a standard, appropriate mortgage would offer.

Sub-prime products are generally designed for higher-risk borrowers and tend to come with higher rates and fewer benefits. For a client with a good credit history, suggesting a sub-prime option would only be acceptable if it would not disadvantage them compared with a suitable standard mortgage. In other words, the overall cost and terms would have to be at least as favorable as a standard product, or there would be a compelling reason that makes the sub-prime choice no worse for the client than the standard alternative.

In cases where the client’s situation clearly aligns with a standard mortgage, or the sub-prime option would put the client at a disadvantage, it would not be appropriate to recommend sub-prime.