CRMP Client Assessment and Eligibility 3 — Questions and Answers
Question 1: A prospective HECM borrower owns a 6-unit mixed-use building and lives in one unit. Is this property eligible?
- No, HECM is limited to properties with 1 to 4 residential units (Correct answer)
- Yes, as long as the borrower occupies one unit as their primary residence
- Yes, but only if the commercial portion is less than 25% of the building's value
- No, mixed-use properties are categorically excluded from HECM
Correct answer: No, HECM is limited to properties with 1 to 4 residential units
HECM eligibility is restricted to 1- to 4-unit residential properties, so a 6-unit building does not qualify regardless of owner-occupancy.
Question 2: What is the primary purpose of HUD-approved HECM counseling in the client assessment process?
- To ensure borrowers understand loan terms, alternatives, and their obligations before proceeding (Correct answer)
- To qualify borrowers financially and approve them for a specific loan amount
- To allow the lender to verify the borrower's income and asset information
- To complete the property appraisal and title search requirements
Correct answer: To ensure borrowers understand loan terms, alternatives, and their obligations before proceeding
HUD-approved counseling provides independent education so borrowers fully understand the HECM product, their obligations, and alternatives before making a decision.
Question 3: A borrower has unpaid homeowners association (HOA) dues creating a lien on the property. How does this affect the HECM assessment?
- The HOA lien must be resolved before closing since HECM must be in first-lien position (Correct answer)
- HOA liens are automatically junior to HECM and do not affect eligibility
- The borrower must agree to a Life Expectancy Set-Aside for future HOA dues
- The property is permanently disqualified due to the HOA lien
Correct answer: The HOA lien must be resolved before closing since HECM must be in first-lien position
HOA liens can take priority over mortgages in some states, so they must be resolved before or at closing to protect the HECM's first-lien position.
Question 4: Which condition would qualify a borrower's condominium unit for HECM financing?
- The condominium project is on HUD's approved condominium list or receives HUD spot approval (Correct answer)
- The condominium association has at least 50 units in the complex
- The borrower has lived in the unit for a minimum of 5 years
- The condominium is FHA-approved under any standard mortgage program
Correct answer: The condominium project is on HUD's approved condominium list or receives HUD spot approval
Condominium units must be in a HUD-approved project or receive individual spot approval under HUD guidelines to be eligible for HECM.
Question 5: A financial assessment reveals a borrower has a pattern of late property tax payments. What tool can the lender use to mitigate this risk?
- A Life Expectancy Set-Aside (LESA) to fund future property tax and insurance payments (Correct answer)
- Denial of the HECM application due to demonstrated inability to pay charges
- Requiring a co-borrower with a stronger payment history
- Mandating the borrower enroll in an automatic tax payment program
Correct answer: A Life Expectancy Set-Aside (LESA) to fund future property tax and insurance payments
A LESA (Life Expectancy Set-Aside) requires setting aside a portion of HECM proceeds to cover future property taxes and insurance, reducing default risk.
Question 6: A 65-year-old client asks about the HECM for Purchase program. Which statement accurately describes eligibility?
- The borrower must use personal funds to cover the difference between the HECM principal limit and the purchase price (Correct answer)
- The HECM for Purchase allows 100% financing with no down payment required
- The program is only available for new construction homes
- The borrower must sell their current home before applying for HECM for Purchase
Correct answer: The borrower must use personal funds to cover the difference between the HECM principal limit and the purchase price
HECM for Purchase requires the borrower to bring the difference between the sales price and the HECM principal limit as a cash down payment from eligible sources.
Question 7: Which of the following best describes 'residual income' in the context of HECM financial assessment?
- Income remaining after subtracting all monthly debt obligations and living expenses (Correct answer)
- Total gross income before any deductions or obligations
- Net income after federal and state income taxes only
- Income from investments and savings accounts only
Correct answer: Income remaining after subtracting all monthly debt obligations and living expenses
Residual income is the amount of net income remaining after all monthly obligations and estimated living expenses are deducted, used to gauge a borrower's ability to maintain property charges.
CRMP Client Assessment and Eligibility 3
A prospective HECM borrower owns a 6-unit mixed-use building and lives in one unit.
Is this property eligible?