CRMP Financial Assessment & Borrower Eligibility 2 — Questions and Answers
Question 1: Under HUD's financial assessment guidelines, which credit history factor is considered an 'extenuating circumstance' that may explain derogatory credit?
- Chronic overspending on discretionary items
- Job loss or medical emergency causing temporary hardship (Correct answer)
- Repeated late payments with no documented cause
- Choosing to prioritize other debts over housing obligations
Correct answer: Job loss or medical emergency causing temporary hardship
HUD recognizes job loss, medical emergencies, and similar events beyond the borrower's control as extenuating circumstances that may excuse derogatory credit history.
Question 2: When calculating Residual Income for a HECM financial assessment, which of the following is EXCLUDED from monthly expenses?
- Property taxes
- Homeowner's insurance
- Federal income taxes (Correct answer)
- Credit card minimum payments
Correct answer: Federal income taxes
Federal income taxes are not included in the residual income expense calculation; it uses housing expenses, installment debt, and revolving debt obligations.
Question 3: A borrower has a property tax default that was resolved 18 months ago. How should the counselor treat this during financial assessment?
- Ignore it since it was resolved more than 12 months ago
- Document it as a resolved derogatory credit event and evaluate the cause (Correct answer)
- Automatically require a LESA for the borrower
- Disqualify the borrower from HECM eligibility
Correct answer: Document it as a resolved derogatory credit event and evaluate the cause
Resolved tax defaults must be documented and analyzed for cause; they do not automatically require a LESA or disqualify the borrower.
Question 4: What is the primary purpose of a Life Expectancy Set-Aside (LESA) in the HECM program?
- To fund home repairs required at origination
- To ensure ongoing payment of property charges over the borrower's life expectancy (Correct answer)
- To cover lender origination fees
- To provide emergency cash reserves for the borrower
Correct answer: To ensure ongoing payment of property charges over the borrower's life expectancy
A LESA is established to ensure property charges (taxes and insurance) are paid throughout the borrower's expected loan period, reducing default risk.
Question 5: Under financial assessment, a borrower who demonstrates satisfactory credit but insufficient residual income would most likely receive which determination?
- Full approval with no conditions
- Mandatory full LESA
- Mandatory partial LESA (Correct answer)
- Loan denial
Correct answer: Mandatory partial LESA
Insufficient residual income with satisfactory credit typically results in a partial LESA rather than a full LESA, unless credit is also unsatisfactory.
Question 6: Which document is the PRIMARY source for verifying a borrower's Social Security income during HECM financial assessment?
- Borrower's personal bank statement
- Social Security Administration award letter (Correct answer)
- Verbal confirmation from the borrower
- Form 1040 tax return only
Correct answer: Social Security Administration award letter
An SSA award letter is the primary verification document for Social Security income, though recent bank statements showing deposits may supplement it.
Question 7: A non-borrowing spouse who is under age 62 at loan origination is eligible for which HECM protection?
- Full loan proceeds equal to the borrowing spouse
- Deferral period allowing continued occupancy after the borrowing spouse's death (Correct answer)
- Independent HECM loan in their own name
- Automatic transfer of the HECM to their name upon spouse's death
Correct answer: Deferral period allowing continued occupancy after the borrowing spouse's death
HUD's Mortgagee Optional Election (MOE) allows a non-borrowing spouse to remain in the home after the borrowing spouse's death or move to a care facility, through a deferral period.
CRMP Financial Assessment & Borrower Eligibility 2
Under HUD's financial assessment guidelines, which credit history factor is considered an 'extenuating circumstance' that may explain derogatory credit?