CRMP Application and Origination 4 — Questions and Answers
Question 1: A borrower has a $120,000 existing mortgage on a home appraised at $350,000. Can they obtain a HECM?
- No, any existing mortgage disqualifies a borrower
- Yes, but only if the existing mortgage is paid off with HECM proceeds at closing (Correct answer)
- Yes, and the existing mortgage can remain as a subordinate lien
- No, because the loan-to-value exceeds 50%
Correct answer: Yes, but only if the existing mortgage is paid off with HECM proceeds at closing
Existing mortgages must be paid off using HECM proceeds at or before closing because the HECM must be in a first-lien position.
Question 2: Which property type is NOT eligible for a standard HECM loan?
- FHA-approved condominium unit
- Single-family home
- Cooperative (co-op) unit in most states (Correct answer)
- Manufactured home on a permanent foundation meeting HUD standards
Correct answer: Cooperative (co-op) unit in most states
Co-op units are generally ineligible for HECMs because the borrower owns shares, not real property, which does not meet FHA's collateral requirements.
Question 3: What is the significance of the 'initial disbursement limit' in the first year of a HECM?
- It caps the total amount the borrower will ever receive from the loan
- It limits draws to 60% of the principal limit (or mandatory obligations plus 10%) in the first 12 months (Correct answer)
- It requires the borrower to take a minimum of 50% of available funds at closing
- It restricts draws to no more than $500 per month in the first year
Correct answer: It limits draws to 60% of the principal limit (or mandatory obligations plus 10%) in the first 12 months
HUD's initial disbursement limit restricts first-year draws to 60% of the principal limit, or mandatory obligations plus 10%, whichever is greater, to prevent rapid equity depletion.
Question 4: A HECM borrower passes away. Their estate has 30 days after notification to repay the loan. What additional time extensions may be available?
- No extensions are permitted under HUD rules
- Up to two 90-day extensions if the estate is actively working to sell or refinance (Correct answer)
- A single 6-month extension granted automatically
- Extensions only apply if the property value exceeds the loan balance
Correct answer: Up to two 90-day extensions if the estate is actively working to sell or refinance
HUD allows up to two 90-day extensions (for a total of up to 12 months from the due date) if the heirs are actively marketing the property or pursuing refinancing.
Question 5: What is the purpose of the mortgage insurance premium (MIP) collected at HECM closing?
- It compensates the counselor for services rendered
- It funds the FHA Mutual Mortgage Insurance Fund, which guarantees the loan (Correct answer)
- It pays the lender's origination costs
- It is held in escrow to pay future property taxes
Correct answer: It funds the FHA Mutual Mortgage Insurance Fund, which guarantees the loan
The upfront MIP goes into the FHA Mutual Mortgage Insurance Fund, which protects borrowers by guaranteeing loan advances if the lender fails and ensuring non-recourse protection.
Question 6: Under HECM rules, which of the following individuals may NOT serve as an agent or power of attorney for a borrower during the application process without prior HUD approval?
- A borrower's adult child who is not on the title
- The HECM originating lender or its employees (Correct answer)
- An independent elder law attorney retained by the borrower
- A HUD-approved housing counseling agency employee
Correct answer: The HECM originating lender or its employees
The originating lender and its employees are prohibited from serving as the borrower's power of attorney due to the inherent conflict of interest.
Question 7: Which occupancy requirement must a HECM borrower satisfy on an ongoing basis to keep the loan in good standing?
- The home must be the borrower's primary residence for at least 6 months per year
- The borrower must reside in the home for at least 183 days per calendar year
- The home must remain the borrower's principal residence (Correct answer)
- The borrower must notify the lender each year that they still occupy the home
Correct answer: The home must remain the borrower's principal residence
The HECM requirement is that the property must remain the borrower's principal residence; there is no precise day count, but abandonment or permanent relocation triggers a maturity event.
CRMP Application and Origination 4
A borrower has a $120,000 existing mortgage on a home appraised at $350,000.
Can they obtain a HECM?