CRMP Financial Assessment & Borrower Eligibility 5 — Questions and Answers
Question 1: A borrower with a LESA experiences a significant increase in property tax assessments. What happens to the existing LESA?
- The LESA automatically adjusts to cover the higher amount
- The servicer covers the shortfall from general operating funds
- The borrower must replenish the LESA with out-of-pocket funds
- The LESA may become insufficient, potentially causing a default if property charges cannot be met (Correct answer)
Correct answer: The LESA may become insufficient, potentially causing a default if property charges cannot be met
If property charges increase beyond the LESA balance, the set-aside may be exhausted early, and the borrower remains responsible for the shortfall or risks a default condition.
Question 2: Which of the following represents the CORRECT order of priority for HECM loan proceeds when mandatory obligations exist at closing?
- Optional cash first, then mandatory obligations, then LESA
- LESA funded first, then mandatory obligations paid, then optional cash disbursed
- Mandatory obligations first, then LESA, then optional cash to borrower (Correct answer)
- All funds disbursed equally across all categories simultaneously
Correct answer: Mandatory obligations first, then LESA, then optional cash to borrower
At HECM closing, mandatory obligations (existing mortgages, liens) are satisfied first, then the LESA is funded, and remaining proceeds are available to the borrower.
Question 3: A borrower applies for a HECM but has a student loan in deferment. How should this obligation be treated in the financial assessment?
- Excluded because it is not currently due
- Included at 1% of the outstanding balance as a monthly obligation (Correct answer)
- Included only after the deferment period ends
- Counted at the actual deferred payment amount of zero
Correct answer: Included at 1% of the outstanding balance as a monthly obligation
Deferred student loans must be included as a monthly liability using 1% of the outstanding balance, consistent with FHA underwriting guidelines, to reflect future obligations.
Question 4: Under HECM financial assessment, which of the following best describes 'compensating factors' a lender may consider?
- Additional collateral pledged to secure the HECM
- Positive factors such as low loan-to-value, significant residual income, or strong payment history that offset a weakness (Correct answer)
- A co-borrower's financial strength substituting for the primary borrower's deficiencies
- Discount points paid upfront to reduce ongoing financial risk
Correct answer: Positive factors such as low loan-to-value, significant residual income, or strong payment history that offset a weakness
Compensating factors are positive financial indicators that may allow approval despite a single weakness, such as higher residual income, low LTV, or minimal debt.
Question 5: A surviving non-borrowing spouse wants to remain in the home after the borrowing spouse dies. Which condition must be met for the deferral period to apply?
- The non-borrowing spouse must be at least 62 at the time of the borrowing spouse's death
- The non-borrowing spouse must have been legally married and listed as such at loan origination (Correct answer)
- The non-borrowing spouse must refinance the HECM into their own name within 90 days
- The property must be sold and proceeds used to pay off the HECM balance
Correct answer: The non-borrowing spouse must have been legally married and listed as such at loan origination
To qualify for the deferral period, the non-borrowing spouse must have been legally married to the borrower at origination and remain married until the borrower's death.
Question 6: Which of the following is the BEST description of 'effective income' as used in HECM financial assessment?
- Total gross income before any deductions
- Income that is stable, reliable, and likely to continue for at least three years (Correct answer)
- Net take-home pay after all withholdings
- Income verified by the IRS only
Correct answer: Income that is stable, reliable, and likely to continue for at least three years
Effective income under HECM guidelines is income that is stable, verifiable, and reasonably expected to continue, making it reliable for sustaining long-term property obligations.
Question 7: When a lender determines a borrower needs a partial LESA, what does 'partial' mean in this context?
- Only 50% of property taxes are set aside, with the borrower paying the rest
- The LESA covers taxes but not insurance
- The LESA is funded for a reduced period rather than full life expectancy
- The set-aside is calculated based on a reduced factor due to satisfactory credit but insufficient income (Correct answer)
Correct answer: The set-aside is calculated based on a reduced factor due to satisfactory credit but insufficient income
A partial LESA applies a reduced factor when only one assessment criterion (income) is unsatisfactory, resulting in a lower set-aside than a full LESA that applies when both credit and income are deficient.
CRMP Financial Assessment & Borrower Eligibility 5
A borrower with a LESA experiences a significant increase in property tax assessments.
What happens to the existing LESA?