Overview
Mortgage operations involve various risks such as credit, interest rate, collateral, and operational risk. Lending organizations may transfer the interest rate and credit risk to a very efficient secondary mortgage market to meet specific risk management objectives. Collateral and Operational risks can be catastrophic risks which are unpredictable. These include collateral being destroyed by a fire or flood, as well as a class action lawsuit which finds the lender at fault for a compliance error. Due to the possibility of large losses, collateral and operational risks should be transferred through the use of commercial insurance policies.