CRMP Client Assessment and Eligibility 5 — Questions and Answers
Question 1: A borrower has recently filed for Chapter 7 bankruptcy and the discharge is pending. What is the impact on HECM eligibility?
- The HECM may proceed after discharge, but the bankruptcy must be reviewed as part of the financial assessment (Correct answer)
- The borrower is permanently disqualified from HECM due to the bankruptcy filing
- The borrower must wait 7 years after discharge to apply for any FHA-insured loan
- Pending bankruptcy has no effect on HECM eligibility or processing
Correct answer: The HECM may proceed after discharge, but the bankruptcy must be reviewed as part of the financial assessment
A bankruptcy discharge resolves most credit obligations, and HECMs can generally proceed after discharge with the event reviewed in the financial assessment for context.
Question 2: Which of the following best describes the HECM Maximum Claim Amount (MCA)?
- The lesser of the appraised value, the purchase price (for purchase transactions), or the FHA loan limit (Correct answer)
- The total amount the borrower can receive over the life of the loan
- The appraised value of the property regardless of FHA limits
- The maximum monthly payment the lender will issue to the borrower
Correct answer: The lesser of the appraised value, the purchase price (for purchase transactions), or the FHA loan limit
The MCA is the lesser of the appraised value or FHA mortgage limit, which serves as the cap on the property value used to calculate HECM proceeds.
Question 3: A borrower aged 73 wants to add their 45-year-old non-spouse partner to the HECM. What should the CRMP explain?
- The partner cannot be added as a borrower since they are under 62 and is not eligible as a non-borrowing spouse (Correct answer)
- The partner can be added as a co-borrower at any age if they co-own the property
- The partner qualifies as an eligible non-borrowing spouse regardless of relationship status
- The partner must be at least 18 to be listed on the HECM in any capacity
Correct answer: The partner cannot be added as a borrower since they are under 62 and is not eligible as a non-borrowing spouse
Non-borrowing spouse protections apply only to legal spouses; a non-spouse partner under 62 cannot be a borrower or receive deferral protections.
Question 4: During client assessment, a CRMP learns the borrower co-owns the property with a sibling who is 55 years old. What is the eligibility concern?
- All titleholders must be HECM borrowers, and the sibling at 55 is below the minimum age of 62 (Correct answer)
- The sibling can remain on title as a non-borrowing co-owner without restrictions
- The sibling must be removed from title and quitclaim the property to the borrower
- Co-ownership with a non-spouse is automatically disqualifying for HECM
Correct answer: All titleholders must be HECM borrowers, and the sibling at 55 is below the minimum age of 62
All individuals on title to the property must be borrowers on the HECM, and all borrowers must be at least 62, so the 55-year-old sibling must either be removed from title or wait.
Question 5: A CRMP is assessing a client in a state with a homestead exemption that limits the ability to place a lien on the property. What step should be taken?
- Consult with a title attorney to ensure the state's homestead laws allow a valid first-lien HECM to be recorded (Correct answer)
- Proceed with the application since federal FHA law supersedes state homestead protections
- Advise the borrower to waive the homestead exemption before proceeding
- Decline the application since homestead states are ineligible for HECM loans
Correct answer: Consult with a title attorney to ensure the state's homestead laws allow a valid first-lien HECM to be recorded
State homestead laws vary and can complicate lien placement; legal review is necessary to confirm the HECM lien can be properly recorded and enforced.
Question 6: When performing a HECM suitability assessment, which situation best warrants recommending against a HECM?
- A borrower who plans to sell the property within 2 years and would incur significant upfront costs relative to short-term benefit (Correct answer)
- A borrower with no monthly income who needs to eliminate their existing mortgage payment
- A borrower whose heirs have expressed no interest in inheriting the property
- A borrower who has previously used a home equity line of credit
Correct answer: A borrower who plans to sell the property within 2 years and would incur significant upfront costs relative to short-term benefit
The high upfront costs of a HECM (origination fees, MIP, closing costs) make it a poor financial choice for borrowers who plan to move or sell in the near term.
Question 7: A borrower's home is located in a Special Flood Hazard Area (SFHA). What is required for HECM eligibility?
- The borrower must obtain and maintain flood insurance as a condition of the HECM (Correct answer)
- Properties in SFHAs are ineligible for FHA-insured HECM loans
- The borrower must apply for a FEMA flood zone re-determination before closing
- Flood insurance is optional if the property has never been flooded
Correct answer: The borrower must obtain and maintain flood insurance as a condition of the HECM
Properties in Special Flood Hazard Areas must carry adequate flood insurance coverage as a mandatory ongoing obligation of the HECM borrower.
CRMP Client Assessment and Eligibility 5
A borrower has recently filed for Chapter 7 bankruptcy and the discharge is pending.
What is the impact on HECM eligibility?