Massachusetts Real Estate License Practice Test

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Get ready for the Massachusetts Real Estate Exam. Study with comprehensive questions and detailed explanations. Enhance your knowledge and confidence to excel in your examination!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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What type of insurance protects a lender against loss in the event of foreclosure if the borrower defaults?

Mortgage Life Insurance
Homeowners Insurance
Private Mortgage Insurance
Title Insurance

The correct answer is: Private Mortgage Insurance

Private Mortgage Insurance (PMI) is the correct type of insurance that protects a lender against loss in the event of foreclosure if the borrower defaults on their mortgage. PMI is typically required for conventional loans when the borrower is unable to provide a 20% down payment, thereby mitigating the lender’s risk. If a borrower defaults on their mortgage and the property goes into foreclosure, the lender can recover some of their losses through the proceeds from the PMI. This is crucial because it enables lenders to offer loans to borrowers who might not otherwise qualify, helping to stimulate home ownership. In contrast, mortgage life insurance covers the borrower’s mortgage payments in the event of their death, homeowners insurance protects the homeowner from losses due to property damage, and title insurance safeguards against issues with ownership of property titles. None of these types of insurance provide the same level of protection to lenders regarding foreclosure losses as PMI does.