Mortgage Loan Originator (MLO) Licensing Practice Test 2025 - Free MLO Practice Questions and Study Guide

The distinguishing feature of Alt-A loans in comparison to subprime loans lies in the credit risk associated with the borrowers. Alt-A loans are typically given to borrowers who may have slightly less-than-perfect credit but are still considered to have adequate creditworthiness for the loan. This means that they present a lower level of credit risk compared to subprime borrowers, who usually have significant credit issues or a lack of credit history, resulting in a higher risk for lenders.

In contrast, borrowers for subprime loans are often considered higher risk due to their credit profiles and may have longer histories of missed payments or defaults. Therefore, while they can access financing through subprime lending, they do so at significantly higher interest rates to offset this risk. Alt-A loans, on the other hand, can carry more favorable terms and conditions, often characterized by lower interest rates than subprime loans, largely because the lenders see these borrowers as having more reliable repayment potential.

The other choices presented do not accurately reflect the nature of Alt-A or subprime loans. For example, subprime loans generally have higher interest rates to cover the added risk. Additionally, Alt-A loans are not exclusively reserved for first-time home buyers, nor do subprime loans meet all typical underwriting requirements, as they are