CRMP - Certified Reverse Mortgage Professional Client Assessment and Eligibility Questions and Answers — Questions and Answers
Question 1: A 70-year-old client is applying for a HECM. His wife is 60 years old. To maximize the loan proceeds, he suggests that only he be listed as the borrower. What is the most critical issue to discuss with this couple regarding this strategy?
- The loan amount will be based on the 70-year-old's age, potentially increasing the proceeds.
- The 60-year-old wife must attend the counseling session even if she is not a borrower.
- If the borrowing husband passes away, the non-borrowing spouse may have to repay the loan or vacate the property if she doesn't meet specific HUD requirements. (Correct answer)
- The property title must be solely in the name of the 70-year-old husband before the loan can close.
Correct answer: If the borrowing husband passes away, the non-borrowing spouse may have to repay the loan or vacate the property if she doesn't meet specific HUD requirements.
While it's true that the loan amount is based on the age of the youngest borrower (or eligible non-borrowing spouse), the most critical point of discussion is the potential risk to the non-borrowing spouse. If the borrowing spouse dies, the loan becomes due and payable. An 'eligible non-borrowing spouse' has protections allowing them to remain in the home, but they must meet all HUD criteria, such as being married at the time of closing and continuing to reside in the home. Failing to meet these criteria could lead to foreclosure.
Question 2: During a financial assessment for a HECM loan, which of the following is the PRIMARY reason for analyzing the client's credit history and residual income?
- To determine the interest rate for the reverse mortgage.
- To ensure the client has sufficient funds for discretionary spending.
- To assess the client's willingness and capacity to meet ongoing property charge obligations, such as taxes and insurance. (Correct answer)
- To calculate the maximum principal limit the borrower can receive.
Correct answer: To assess the client's willingness and capacity to meet ongoing property charge obligations, such as taxes and insurance.
The financial assessment was implemented by HUD to reduce defaults on HECM loans. Its main purpose is to verify that the borrower has the financial capacity and a demonstrated history of willingness to pay ongoing property-related expenses, such as property taxes, homeowners insurance, and maintenance costs, which are required to be paid by the borrower throughout the life of the loan.
Question 3: Which of the following property types is generally INELIGIBLE for an FHA-insured HECM?
- A single-family home that is the borrower's primary residence.
- A unit in a condominium project that is not on the FHA-approved list. (Correct answer)
- A four-unit dwelling where the borrower occupies one of the units as their primary residence.
- A manufactured home that meets FHA guidelines.
Correct answer: A unit in a condominium project that is not on the FHA-approved list.
For a condominium to be eligible for a HECM, the entire condominium project must be approved by the FHA, or the specific unit must qualify for Single-Unit Approval. A unit in a non-approved project is generally ineligible. Single-family homes, 1-4 unit properties with one unit owner-occupied, and FHA-compliant manufactured homes are all potentially eligible property types.
Question 4: A client, age 65, wants to obtain a HECM. She owns her home outright, but she has been delinquent on her federal income taxes for the past two years. How does this outstanding federal debt affect her eligibility?
- It has no impact, as the HECM is based on home equity, not tax compliance.
- She will be required to enter into a payment plan with the IRS before closing.
- She is ineligible for a HECM until the delinquent federal debt is resolved. (Correct answer)
- A portion of the HECM proceeds must be set aside in a LESA to pay the back taxes.
Correct answer: She is ineligible for a HECM until the delinquent federal debt is resolved.
Having a delinquent federal non-tax debt, such as unpaid federal income taxes or a defaulted federal student loan, will disqualify an applicant from obtaining an FHA-insured HECM. The applicant must resolve the debt to become eligible for the loan.
Question 5: What is the mandatory first step a prospective HECM borrower must complete before a lender can even begin processing a loan application?
- Obtain an FHA appraisal of their property.
- Receive counseling from a HUD-approved counseling agency. (Correct answer)
- Provide three years of income tax returns to the lender.
- Pay for a title search and preliminary title report.
Correct answer: Receive counseling from a HUD-approved counseling agency.
HUD mandates that all prospective HECM borrowers must first receive counseling from an independent, HUD-approved counseling agency. The counselor will discuss the borrower's needs, the features of a reverse mortgage, and potential alternatives. The borrower receives a counseling certificate upon completion, which is a required part of the loan application package.
Question 6: A 75-year-old individual is applying for a HECM on their primary residence. They also own a vacation cabin in another state. How is the vacation cabin treated during the eligibility assessment?
- The equity in the vacation cabin can be used to increase the HECM loan amount.
- The vacation cabin is irrelevant to the HECM application.
- The client must sell the vacation cabin to be eligible for a HECM.
- The property taxes and insurance on the vacation cabin are included in the financial assessment to determine the ability to pay obligations. (Correct answer)
Correct answer: The property taxes and insurance on the vacation cabin are included in the financial assessment to determine the ability to pay obligations.
During the financial assessment, the lender must evaluate the borrower's overall financial capacity to meet all their obligations. This includes the ongoing costs for other properties they own, such as property taxes and insurance on a second home, as these are part of the borrower's total monthly liabilities and affect their residual income.
CRMP - Certified Reverse Mortgage Professional Client Assessment and Eligibility Questions and Answers
A 70-year-old client is applying for a HECM.
His wife is 60 years old.
To maximize the loan proceeds, he suggests that only he be listed as the borrower.
What is the most critical issue to discuss with this couple regarding this strategy?