CRMP Financial Assessment and Underwriting 5 — Questions and Answers
Question 1: In HECM financial assessment, what does the term 'compensating factors' refer to?
- Extra fees charged to compensate for higher-risk borrowers
- Positive financial attributes that may offset unsatisfactory credit or income findings (Correct answer)
- Discounts applied to the interest rate for strong borrowers
- HUD allowances for borrowers with military service
Correct answer: Positive financial attributes that may offset unsatisfactory credit or income findings
Compensating factors are positive financial indicators that a lender may use to justify approval despite one unsatisfactory finding.
Question 2: A borrower's credit report shows a $2,200 medical collection that is less than two years old. Under HECM financial assessment, the lender should:
- Count the minimum monthly payment as a liability
- Disregard the collection entirely without further analysis
- Exclude it from the credit analysis since medical collections are not considered derogatory under HUD FA rules (Correct answer)
- Require the debt to be paid before closing
Correct answer: Exclude it from the credit analysis since medical collections are not considered derogatory under HUD FA rules
HUD FA guidelines explicitly exclude medical collections from the definition of derogatory credit, so they do not count against the borrower.
Question 3: How does a lender determine the required residual income threshold for a HECM applicant?
- By applying a fixed percentage of gross income regardless of geography
- By referencing HUD's published table based on household size and geographic region (Correct answer)
- By using the borrower's pre-retirement budget as submitted
- By applying the Freddie Mac residual income tables used for conventional loans
Correct answer: By referencing HUD's published table based on household size and geographic region
HUD publishes regional residual income tables organized by household size, and lenders must use the appropriate table for the borrower's location.
Question 4: A borrower age 80 has no mortgage debt and receives $2,400/month in Social Security. Their only property charges are $1,800/year in taxes and $900/year in insurance. Under financial assessment, this borrower most likely:
- Fails due to age-related income limitations
- Passes with satisfactory residual income and no LESA required (Correct answer)
- Requires a Partially-Funded LESA due to fixed income
- Must provide two co-signers to compensate for low assets
Correct answer: Passes with satisfactory residual income and no LESA required
With $2,400 monthly income and only $225/month in property charges, residual income likely exceeds HUD thresholds and no LESA is triggered.
Question 5: When a HECM borrower has a prior HECM that was assigned to HUD due to a 98% loan balance, how does this affect the financial assessment for a new HECM?
- The prior assignment has no impact on the new application
- It is treated as a derogatory event and must be evaluated in the credit analysis (Correct answer)
- The borrower is automatically disqualified from obtaining another HECM
- The lender must request a waiver from FHA before proceeding
Correct answer: It is treated as a derogatory event and must be evaluated in the credit analysis
A prior HECM assignment to HUD is a credit event that must be identified and evaluated as part of the financial assessment credit analysis.
Question 6: Which income source requires verification through a current award letter AND evidence of recent receipt such as a bank statement?
- Rental income
- Social Security or SSI income (Correct answer)
- Pension income from a private employer
- Dividend income from investments
Correct answer: Social Security or SSI income
Social Security income must be verified with a current award letter and evidence of actual receipt, typically a bank statement showing the deposit.
Question 7: If a borrower has both satisfactory credit and sufficient residual income, but voluntarily wants a LESA established, what is the lender's obligation?
- The lender must deny the voluntary LESA request since it is not warranted by FA results
- The lender may establish a voluntary LESA at the borrower's request (Correct answer)
- The lender must obtain HUD approval before establishing any voluntary set-aside
- The lender must charge the borrower an additional origination fee for the LESA
Correct answer: The lender may establish a voluntary LESA at the borrower's request
A borrower who passes financial assessment may still elect a voluntary LESA to help manage future property charge obligations.
CRMP Financial Assessment and Underwriting 5
In HECM financial assessment, what does the term 'compensating factors' refer to?