CRMP Application and Origination 5 — Questions and Answers
Question 1: A borrower is 74 years old and applies for a HECM with a home appraised at $400,000 and an expected rate of 5.5%. Which factor most directly determines the principal limit?
- The borrower's credit score
- The HUD principal limit factor based on age and expected rate (Correct answer)
- The lender's internal underwriting criteria
- The home's assessed tax value
Correct answer: The HUD principal limit factor based on age and expected rate
HUD publishes principal limit factor (PLF) tables based on the youngest borrower's age and the expected interest rate; these factors directly determine how much the borrower can access.
Question 2: What document must be provided to a HECM applicant within 3 business days of application, disclosing estimated loan costs and terms?
- Closing Disclosure
- Good Faith Estimate (GFE)
- Loan Estimate (Correct answer)
- HUD-1 Settlement Statement
Correct answer: Loan Estimate
Under TRID rules, lenders must provide a Loan Estimate within 3 business days of receiving a complete application, disclosing key loan terms and estimated costs.
Question 3: A condo borrower wants a HECM but the condominium project is not on the FHA-approved list. What option exists?
- The loan is automatically denied with no alternative
- The borrower may apply for single-unit approval under HUD's spot approval process (Correct answer)
- The borrower must purchase a different property
- The lender may waive the FHA approval requirement for high-value units
Correct answer: The borrower may apply for single-unit approval under HUD's spot approval process
HUD's single-unit approval (spot approval) allows individual condo units to qualify for FHA financing even if the entire project is not on the approved list, subject to eligibility criteria.
Question 4: In a HECM transaction, what does the term 'non-recourse' mean for the borrower or their heirs?
- The lender cannot charge interest after the borrower's death
- The borrower will never owe more than the home's value at the time of repayment (Correct answer)
- The loan has no origination fee if the borrower defaults
- The lender cannot foreclose if the borrower misses property tax payments
Correct answer: The borrower will never owe more than the home's value at the time of repayment
Non-recourse means the repayment amount is capped at the lesser of the loan balance or the home's appraised value; the estate is never liable for any shortfall.
Question 5: Which statement about the HECM line of credit growth feature is accurate?
- The available line of credit grows at the same rate as the home's market appreciation
- The unused line of credit grows at the current loan interest rate plus MIP, regardless of home value changes (Correct answer)
- Growth is capped at 2% per year by HUD regulation
- The line of credit only grows if the borrower makes voluntary repayments
Correct answer: The unused line of credit grows at the current loan interest rate plus MIP, regardless of home value changes
The unused HECM line of credit grows at the same rate as the accruing interest (note rate plus ongoing MIP), independent of the home's actual market value.
Question 6: What is a Life Expectancy Set-Aside (LESA) and when is it required?
- A savings account the borrower must open before applying for a HECM
- A portion of loan proceeds withheld to pay property charges for borrowers who fail Financial Assessment (Correct answer)
- An escrow account funded monthly to cover homeowner's insurance
- A reserve required only for fixed-rate HECMs to cover interest accrual
Correct answer: A portion of loan proceeds withheld to pay property charges for borrowers who fail Financial Assessment
A LESA is a required set-aside of loan proceeds used to pay property taxes and insurance for borrowers who do not meet the Financial Assessment credit or income standards.
Question 7: A HECM originator must provide the borrower with the Total Annual Loan Cost (TALC) disclosure. What does TALC represent?
- The cumulative interest charged over the life of the loan
- An annualized cost projection that accounts for all loan costs over various time horizons (Correct answer)
- The lender's annual profit margin on the HECM product
- The total origination fee expressed as an annual percentage
Correct answer: An annualized cost projection that accounts for all loan costs over various time horizons
TALC is a required reverse mortgage disclosure showing the annualized total cost of the loan projected over multiple time periods, helping borrowers compare products.
CRMP Application and Origination 5
A borrower is 74 years old and applies for a HECM with a home appraised at $400,000 and an expected rate of 5.5%.
Which factor most directly determines the principal limit?