Client Assessment and Eligibility Flashcards

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?

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.

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?

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.

Which of the following property types is generally INELIGIBLE for an FHA-insured HECM?

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.

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?

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.

What is the mandatory first step a prospective HECM borrower must complete before a lender can even begin processing a loan application?

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.

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?

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.