In order to pass the exam for becoming a licensed practical mortgage broker you will need to score at least a 3.4 on the test. This is the minimum requirement by most states in order to be licensed. Some states may have higher requirements, but the good news is that it is not the end of the road. Many states will increase these requirements as new and innovative mortgage technology is developed. For this reason it is always a good idea to keep up with current information.
Financial institutions have two types of risk management in financial institutions that they must demonstrate. The first type is property risk management. Most people think of this type of risk management in financial institutions when they hear the word “mortgage” associated with it. Properties are sold and resold based upon the performance of the underlying asset, so it is imperative that financial institutions understand this aspect of risk management in financial institutions and how to best manage it.
One of the elements of property risk management is risk exposure. This means that the institution must have knowledge of the risks it faces. A good example is the probability that a particular property purchased will become a loss in the event of a fire, flood, hurricane or other disaster. A property risk manager can evaluate this aspect of property risk management in financial institutions and develop appropriate strategies for addressing the issue.
Another aspect of risk management in financial institutions is securities risk management. This refers to the process of analyzing and identifying various security investments and the associated risks involved with each security. For example, stock and bond markets are considered securities risks because they represent an outright investment of money. Additionally, bonds carry interest risk. A manager looking into the matter of risk management in financial institutions will evaluate various aspects of these and other areas to identify areas that require additional attention. These areas can include ratings, exchange-traded funds, foreign exchange, interest rate sensitive instruments, credit risk and a variety of other factors.
When I took the Professional Responsibility and Market Assurance exam recently, I was surprised to see that one of the topics on the exam that dealt with risk management in financial institutions was how to analyze risk. This is a very important topic because people managing financial investments make decisions based on the current outlook for returns. Exam Question 6 on the test required me to assess and explain how I evaluate the risks involved in various investments. Since the topic area focused on examining risk, I had to really think about my answer and how to incorporate it within my decision making process.
The key to answering the question posed to me in the exam was to be very clear about what I meant by risk. As I mentioned before, I had to think about my answer in terms of the current environment. If I was working in an organization that was making direct investments in businesses and infrastructure, then the question made sense. However, if I were working at a brokerage firm that was primarily involved in discounting financial products such as securities and futures, then my risk analysis would be a little more complex. The environment is always changing.
One other area of risk management in financial institutions that I had to get clear about in the review is the credit risk that exists in the market. This type of risk is very difficult to manage since most credit transactions are automated. Automated systems are designed to minimize the possibility of default, which means that there is no actual human being involved. To illustrate this point, imagine that you are a financial institution looking to hire someone to help manage the accounts of clients. It would be difficult for a computer to tell whether or not the person would default on a credit card.