CRMP Financial Assessment & Borrower Eligibility 3 — Questions and Answers
Question 1: Which of the following income types is given the LEAST weight in a HECM financial assessment because it is not guaranteed to continue?
- Social Security retirement benefits
- Pension distributions from a defined benefit plan
- Part-time employment wages (Correct answer)
- Required Minimum Distributions from an IRA
Correct answer: Part-time employment wages
Part-time employment wages are considered less stable and least likely to continue long-term compared to fixed retirement income sources like Social Security or pensions.
Question 2: During a HECM financial assessment, the lender discovers the borrower has an outstanding federal tax lien. What is required?
- The loan is automatically denied
- The lien must be paid in full before or at closing, or a repayment plan must be in place (Correct answer)
- The lien can be ignored if it is under $5,000
- A LESA must be established equal to the lien amount
Correct answer: The lien must be paid in full before or at closing, or a repayment plan must be in place
Federal tax liens must be satisfied at or before closing, or the borrower must have an approved IRS repayment agreement in place.
Question 3: What residual income benchmark does HUD use as a reference when evaluating HECM applicants?
- FHA Section 203(b) guidelines
- VA loan residual income tables by region and family size (Correct answer)
- Fannie Mae debt-to-income ratios
- CFPB Ability-to-Repay standards
Correct answer: VA loan residual income tables by region and family size
HUD's HECM financial assessment references VA loan residual income tables, adjusted by region and family size, as a benchmark.
Question 4: A borrower owns a home in a flood zone. How does this affect HECM eligibility from a financial assessment standpoint?
- The home is automatically ineligible for a HECM
- Flood insurance premiums must be factored into the ongoing property charge obligations (Correct answer)
- Flood zone properties require a double LESA
- The borrower must relocate before applying
Correct answer: Flood insurance premiums must be factored into the ongoing property charge obligations
Flood insurance is a mandatory property charge for homes in flood zones and must be included when calculating the borrower's ability to sustain property charges.
Question 5: Which of the following scenarios would result in a 'satisfactory' credit determination under HUD's financial assessment?
- Three 90-day late payments on a mortgage in the past 24 months
- No late housing or installment payments in the past 12 months with no major derogatory history in 24 months (Correct answer)
- A bankruptcy discharged 18 months ago with no subsequent credit activity
- Two 30-day late payments on a credit card last month
Correct answer: No late housing or installment payments in the past 12 months with no major derogatory history in 24 months
HUD's satisfactory credit standard generally requires no late housing payments in 12 months and no major derogatory events in 24 months.
Question 6: If a HECM borrower has a fully funded LESA, what is the borrower's ongoing obligation for property charges?
- The borrower must still pay property taxes directly
- The servicer pays property charges from the LESA funds on the borrower's behalf (Correct answer)
- The borrower receives a monthly check to pay charges independently
- The lender pays charges and adds them to the loan balance without a set-aside
Correct answer: The servicer pays property charges from the LESA funds on the borrower's behalf
With a fully funded LESA, the servicer administers payments for taxes and insurance directly from the set-aside account, removing that obligation from the borrower.
Question 7: What minimum age must ALL borrowers on the title meet to qualify for a HECM?
- 55 years old
- 60 years old
- 62 years old (Correct answer)
- 65 years old
Correct answer: 62 years old
All borrowers listed on the HECM must be at least 62 years of age at the time of loan closing to qualify.
CRMP Financial Assessment & Borrower Eligibility 3
Which of the following income types is given the LEAST weight in a HECM financial assessment because it is not guaranteed to continue?