CRMP Financial Assessment and Underwriting 3 — Questions and Answers
Question 1: Under HECM financial assessment guidelines, what is the primary purpose of analyzing a borrower's credit history?
- To determine the loan-to-value ratio
- To assess willingness and capacity to meet financial obligations (Correct answer)
- To set the interest rate on the loan
- To calculate the principal limit factor
Correct answer: To assess willingness and capacity to meet financial obligations
Credit history in financial assessment is used to evaluate a borrower's willingness and capacity to pay property charges and loan obligations.
Question 2: Which document is NOT typically required to verify a borrower's income during HECM financial assessment?
- Social Security award letter
- Bank statements for the past 12 months
- Most recent two years of federal tax returns
- Property deed to the subject property (Correct answer)
Correct answer: Property deed to the subject property
A property deed establishes ownership but is not an income verification document used in financial assessment.
Question 3: A borrower age 74 wants a HECM but has a recent 60-day mortgage delinquency from 18 months ago that was caused by a hospitalization. Under FA guidelines, how should the lender likely treat this?
- Automatically deny the loan
- Consider it as extenuating circumstances and potentially approve without a LESA (Correct answer)
- Require a full Fully-Funded LESA regardless
- Refer the file to HUD for special approval
Correct answer: Consider it as extenuating circumstances and potentially approve without a LESA
Documented extenuating circumstances such as hospitalization can offset isolated derogatory credit events under HUD FA guidelines.
Question 4: How does a lender determine the expected LESA amount for property taxes in a Fully-Funded LESA?
- Current annual property tax multiplied by the borrower's remaining life expectancy (Correct answer)
- A flat $5,000 set-aside required by HUD
- The prior year's tax bill only
- Property tax as a percentage of the appraised value
Correct answer: Current annual property tax multiplied by the borrower's remaining life expectancy
The LESA for taxes is calculated by multiplying current annual property charges by the borrower's HUD-published life expectancy factor.
Question 5: What happens to unused funds in a Fully-Funded LESA when the borrower dies or the loan becomes due and payable?
- They revert to HUD's insurance fund
- They are added to the loan balance owed
- They reduce the outstanding loan balance or are returned to the estate (Correct answer)
- They are forfeited to the lender
Correct answer: They reduce the outstanding loan balance or are returned to the estate
Unused LESA funds reduce the outstanding loan balance or are returned to the borrower's estate at loan payoff.
Question 6: A borrower who owns rental property shows rental income on Schedule E. How should a lender calculate usable monthly rental income?
- Use 100% of gross rents collected
- Use gross rents minus a 25% vacancy factor
- Use net rental income from Schedule E averaged over two years (Correct answer)
- Use only current-month rental income verified by a lease
Correct answer: Use net rental income from Schedule E averaged over two years
Lenders average two years of Schedule E net rental income to establish a stable, documentable monthly figure.
Question 7: Which of the following best describes 'residual income' in the context of HECM financial assessment?
- Total gross monthly income minus total monthly debts
- Net monthly income remaining after all monthly obligations and living expenses are paid (Correct answer)
- Social Security income only, excluding other sources
- Income minus property taxes and insurance
Correct answer: Net monthly income remaining after all monthly obligations and living expenses are paid
Residual income is the net monthly income left after subtracting all monthly debt obligations and estimated living expenses.
CRMP Financial Assessment and Underwriting 3
Under HECM financial assessment guidelines, what is the primary purpose of analyzing a borrower's credit history?