Application and Origination Flashcards

A prospective HECM borrower is gathering documents for their application. Which of the following is a standard document required during the origination process to verify the borrower's identity and age?

Answer: A valid, unexpired state-issued driver's license or ID card

During the HECM application process, lenders require a valid, unexpired government-issued photo ID, such as a driver's license or state ID card, to verify the borrower's identity and confirm they meet the minimum age requirement of 62.

A loan originator is working with a married couple. The husband is 70 years old, but his wife is 59. They want to proceed with a HECM. The wife will be classified as a Non-Borrowing Spouse (NBS). To ensure the wife can remain in the home after her husband passes away under the deferral period, what specific action must occur at origination?

Answer: The wife must be specifically identified as an 'Eligible Non-Borrowing Spouse' in the loan documents.

For a Non-Borrowing Spouse to be protected by the deferral period (allowing them to remain in the home after the borrower's death), they must be identified as an 'Eligible Non-Borrowing Spouse' in the HECM loan documents at the time of origination and closing. This status is contingent on meeting specific criteria, such as being legally married at closing and occupying the home as a principal residence.

During the Financial Assessment, an underwriter determines that a borrower may struggle to pay their future property taxes and homeowners insurance. To mitigate this risk, the underwriter requires a portion of the HECM proceeds to be set aside to cover these future charges. What is this set-aside called?

Answer: Life Expectancy Set-Aside (LESA)

A Life Expectancy Set-Aside (LESA) is a requirement established during the Financial Assessment where a portion of the loan proceeds is reserved to pay for future property charges, such as taxes and insurance. This is done to reduce the risk of default when a borrower may have limited income or a poor history of paying these charges on time.

An applicant for a HECM owns a condominium. What is a critical property eligibility requirement specific to this type of dwelling?

Answer: The condominium project must be approved by the Federal Housing Administration (FHA) or meet single-unit approval guidelines.

For a condominium to be eligible for an FHA-insured HECM, the entire condominium project must be on the FHA-approved list, or the individual unit must qualify under the Single-Unit Approval (SUA) process. This ensures that the project as a whole meets FHA standards for financial stability and governance.

Which of the following documents is uniquely required for a HECM-to-HECM refinance application to ensure the transaction provides a tangible benefit to the borrower?

Answer: The Home Equity Conversion Mortgage Anti-Churning Disclosure

The Home Equity Conversion Mortgage Anti-Churning Disclosure (Form HUD-92901) is specifically required for HECM-to-HECM refinance transactions. Its purpose is to protect borrowers from predatory lending practices by ensuring that the refinance provides a legitimate financial benefit and is not just generating fees for the lender.

A borrower applies for a HECM and the Financial Assessment reveals they have a history of paying their previous mortgage and installment loans on time, but have been more than 90 days late on two credit card payments in the last 24 months. How would an underwriter most likely proceed?

Answer: Require a fully funded Life Expectancy Set-Aside (LESA) due to the credit risk.

The Financial Assessment evaluates the borrower's overall willingness and ability to meet financial obligations. While there is no minimum FICO score, major derogatory credit (such as payments 90+ days late) is a significant concern. An underwriter would likely view this as an increased risk of default on future property charges and, as a mitigating factor, require a fully funded Life Expectancy Set-Aside (LESA) to ensure taxes and insurance are paid.