CRMP Financial Assessment and Underwriting 4 — Questions and Answers
Question 1: Under HUD Mortgagee Letter 2014-21, which TWO unsatisfactory factors must BOTH be present to require a Fully-Funded LESA?
- Unsatisfactory credit history AND insufficient residual income (Correct answer)
- Low credit score AND high loan-to-value
- Delinquent property taxes AND bankruptcy history
- Insufficient assets AND low Social Security income
Correct answer: Unsatisfactory credit history AND insufficient residual income
A Fully-Funded LESA is required only when BOTH the borrower's credit history AND residual income are found to be unsatisfactory.
Question 2: A borrower disputes a collection account on their credit report. During HECM financial assessment, the lender should:
- Ignore the dispute and count the debt as a monthly liability
- Wait for the dispute to be resolved before proceeding
- Treat the disputed account according to HUD guidelines, which may still require evaluation (Correct answer)
- Remove the debt from liability calculations automatically
Correct answer: Treat the disputed account according to HUD guidelines, which may still require evaluation
HUD requires lenders to evaluate disputed accounts and determine if they represent a pattern of credit disregard regardless of the dispute status.
Question 3: For a borrower who is self-employed, which income figure is used in the HECM financial assessment?
- Gross business revenues from the profit and loss statement
- Net self-employment income from Schedule C averaged over two years (Correct answer)
- The borrower's stated income if verified by a CPA letter
- Total deposits into business bank accounts
Correct answer: Net self-employment income from Schedule C averaged over two years
Net self-employment income from Schedule C is averaged over two years to determine a stable monthly income figure for FA purposes.
Question 4: A HECM borrower has satisfactory credit but residual income that is $75 below the HUD threshold. What type of LESA is typically required?
- No LESA is required since credit is satisfactory
- A Fully-Funded LESA
- A Partially-Funded LESA (Correct answer)
- A voluntary borrower-funded reserve account
Correct answer: A Partially-Funded LESA
A Partially-Funded LESA is required when credit is satisfactory but residual income alone falls short of the HUD threshold.
Question 5: Which of the following is considered a 'satisfactory' credit history outcome in HECM financial assessment?
- No late mortgage payments in the past 24 months and no more than two 30-day late installment payments in the past 12 months (Correct answer)
- One 90-day late mortgage payment in the past 12 months with a written explanation
- Three 30-day late revolving account payments in the past 6 months
- A discharged Chapter 13 bankruptcy within the past 12 months
Correct answer: No late mortgage payments in the past 24 months and no more than two 30-day late installment payments in the past 12 months
HUD's satisfactory credit standard allows up to two 30-day late installment payments in 12 months if the mortgage history is clean for 24 months.
Question 6: When a non-borrowing spouse exists on a HECM, how does financial assessment treat their income?
- Their income is always excluded from the analysis
- Their income can be counted if they are a co-signer on the note
- Their income may be included as effective income if it is available to pay property charges (Correct answer)
- Their income is used only to calculate the residual income threshold adjustment
Correct answer: Their income may be included as effective income if it is available to pay property charges
Income from a non-borrowing spouse may be counted as effective income if it is consistently available to the borrower for meeting obligations.
Question 7: A borrower has a delinquent property tax obligation that was paid off three months ago. How should the lender treat this during financial assessment?
- Ignore it since the debt is resolved
- Document the delinquency, evaluate the reason, and consider compensating factors (Correct answer)
- Automatically impose a Fully-Funded LESA
- Require a 12-month waiting period before approving the HECM
Correct answer: Document the delinquency, evaluate the reason, and consider compensating factors
A resolved delinquency must be documented and evaluated in the context of overall credit history and any compensating factors.
CRMP Financial Assessment and Underwriting 4
Under HUD Mortgagee Letter 2014-21, which TWO unsatisfactory factors must BOTH be present to require a Fully-Funded LESA?