In Residual Collections, which factor can diminish residual FMV?

In Residual Collections, which factor can diminish residual FMV?

• A. The lessee's payment history
• B. Low demand in the market
• C. Cost of repossession may diminish residual FMV
• D. Increasing interest rates

Answer: (C)

Residual FMV is the net value you expect to realize from the collateral after it’s repossessed and sold, accounting for the costs of recovery and disposal. The cost of repossession can diminish this value because those costs are subtracted from the sale proceeds. If repossession is expensive, the cash left over to apply to the loan or to cover the deficiency declines, lowering the residual FMV. Other factors can affect asset value, but they don’t reduce the net recovery as directly as the costs tied to repossession.

Residual FMV is the net value you expect to realize from the collateral after it’s repossessed and sold, accounting for the costs of recovery and disposal. The cost of repossession can diminish this value because those costs are subtracted from the sale proceeds. If repossession is expensive, the cash left over to apply to the loan or to cover the deficiency declines, lowering the residual FMV. Other factors can affect asset value, but they don’t reduce the net recovery as directly as the costs tied to repossession.