Mortgage Loan Originator (MLO) National Exam – Artricia Woods Practice Exam

The term that describes the coverage protecting a lender against losses from a borrower's default is mortgage insurance. This type of insurance is typically required when a borrower makes a down payment that is less than 20% of the home's purchase price. It serves as a safeguard for lenders, allowing them to recover some of their losses if the borrower defaults on the loan. By reducing the lender's risk, mortgage insurance enables borrowers to qualify for loans that they might not otherwise be eligible for due to low equity.

Other insurance types mentioned, such as title insurance, flood insurance, and homeowners insurance, serve different purposes. Title insurance protects against defects in the property title, flood insurance covers damage from flooding, and homeowners insurance protects against damages to the home and personal property. None of these provide the specific coverage related to the lender's risk associated with borrower default like mortgage insurance does.