Counseling and Disclosures Flashcards

A prospective borrower completes their mandatory HECM counseling on March 15th. They wait to consider their options and do not sign a formal loan application with a lender until September 20th of the same year. What is the status of their counseling certificate on the date of application?

Answer: It has expired, and the borrower must complete a new counseling session.

According to HUD guidelines, a HECM counseling certificate is valid for 180 days from the date the counseling session is completed. In this scenario, more than 180 days (approximately 189 days) have passed between March 15th and September 20th. Therefore, the certificate has expired, and the borrower must undergo counseling again before a loan application can be processed.

A HECM loan applicant is reviewing their initial disclosures. Which specific document is designed to show them the projected total cost of the loan as an annual rate over several different time horizons and at various home appreciation rates?

Answer: The Total Annual Loan Cost (TALC) Disclosure

The Total Annual Loan Cost (TALC) Disclosure is a HECM-specific document required by Regulation Z. It is uniquely designed to illustrate the total cost of the loan, including all fees and interest, as an annual rate. It projects this cost over different time periods (e.g., 2 years, the borrower's life expectancy) and assumes different rates of property value appreciation (0%, 4%, 8%) to give the borrower a comprehensive long-term cost perspective.

A married couple is applying for a HECM. The husband is 72 and will be the sole borrower. His wife is 60 and will be a Non-Borrowing Spouse (NBS). To ensure the loan is FHA-insurable and the NBS protections are in place, what is the counseling requirement for the wife?

Answer: She must attend the counseling session.

For a HECM to be FHA-insurable where a Non-Borrowing Spouse exists, HUD requires the NBS to receive counseling and sign the counseling certificate. This ensures the NBS fully understands their rights, the conditions of the deferral period that may allow them to remain in the home after the borrower's death, and their responsibilities under the loan terms.

During a HUD-mandated HECM counseling session, which of the following topics is a counselor required to discuss with the prospective borrower?

Answer: The financial implications of the HECM and alternatives to a reverse mortgage.

HUD-approved HECM counselors must provide impartial education. Their required curriculum includes discussing the financial implications of the loan, its effect on the borrower's estate, tax consequences, and exploring all available alternatives, such as other housing, social service, or financial options. They are explicitly forbidden from steering borrowers to specific lenders or products.

A loan originator takes a complete and accurate HECM loan application from a client on Tuesday morning. According to the TILA-RESPA Integrated Disclosure (TRID) rule, what is the latest day the originator must mail or deliver the initial disclosure package, including the Loan Estimate?

Answer: Friday

The TRID rule requires lenders to provide the initial disclosures, including the Loan Estimate, no later than the third business day after receiving a complete application. If the application is received on Tuesday, the third business day is Friday (Wednesday is day one, Thursday is day two, Friday is day three).

Which of the following is a key disclosure that must be provided to a HECM borrower, explaining that while they do not make monthly mortgage payments, their loan balance will increase over time due to accruing interest and fees?

Answer: The Negative Amortization Disclosure

A Negative Amortization Disclosure is critical for HECM borrowers. It explains that because they are not required to make monthly payments, the interest, mortgage insurance premiums, and servicing fees are added to the principal loan balance. This causes the total amount owed to grow over time, a process known as negative amortization.