Financial Assessment & Borrower Eligibility Flashcards

A borrower with a LESA experiences a significant increase in property tax assessments. What happens to the existing LESA?

Answer: The LESA may become insufficient, potentially causing a default if property charges cannot be met

If property charges increase beyond the LESA balance, the set-aside may be exhausted early, and the borrower remains responsible for the shortfall or risks a default condition.

Which of the following represents the CORRECT order of priority for HECM loan proceeds when mandatory obligations exist at closing?

Answer: Mandatory obligations first, then LESA, then optional cash to borrower

At HECM closing, mandatory obligations (existing mortgages, liens) are satisfied first, then the LESA is funded, and remaining proceeds are available to the borrower.

A borrower applies for a HECM but has a student loan in deferment. How should this obligation be treated in the financial assessment?

Answer: Included at 1% of the outstanding balance as a monthly obligation

Deferred student loans must be included as a monthly liability using 1% of the outstanding balance, consistent with FHA underwriting guidelines, to reflect future obligations.

Under HECM financial assessment, which of the following best describes 'compensating factors' a lender may consider?

Answer: Positive factors such as low loan-to-value, significant residual income, or strong payment history that offset a weakness

Compensating factors are positive financial indicators that may allow approval despite a single weakness, such as higher residual income, low LTV, or minimal debt.

A surviving non-borrowing spouse wants to remain in the home after the borrowing spouse dies. Which condition must be met for the deferral period to apply?

Answer: The non-borrowing spouse must have been legally married and listed as such at loan origination

To qualify for the deferral period, the non-borrowing spouse must have been legally married to the borrower at origination and remain married until the borrower's death.

Which of the following is the BEST description of 'effective income' as used in HECM financial assessment?

Answer: Income that is stable, reliable, and likely to continue for at least three years

Effective income under HECM guidelines is income that is stable, verifiable, and reasonably expected to continue, making it reliable for sustaining long-term property obligations.

When a lender determines a borrower needs a partial LESA, what does 'partial' mean in this context?

Answer: The set-aside is calculated based on a reduced factor due to satisfactory credit but insufficient income

A partial LESA applies a reduced factor when only one assessment criterion (income) is unsatisfactory, resulting in a lower set-aside than a full LESA that applies when both credit and income are deficient.