Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which statement about a mortgage title insurance policy is true?

1. Based on the loan amount

2. Transferable

3. Optional

4. Required by the lender

The correct answer is: Optional

A mortgage title insurance policy is designed to protect against losses arising from defects in the title to a property. It is an essential component of real estate transactions, providing reassurance to lenders that their investment is secure. The correct choice regarding whether a mortgage title insurance policy is optional is accurate because the necessity of title insurance can vary depending on the lender’s requirements and state laws. While lenders often recommend title insurance to protect themselves against potential claims or defects in the title, it isn't universally required. Thus, borrowers may choose whether to purchase it, making it optional in many cases. Understanding that title insurance is generally considered as part of a complete risk management strategy can help clarify its optional status. If a borrower opts not to have title insurance, they may be assuming greater risk in the event of future disputes over property ownership or other title-related issues, but this choice remains at their discretion.