CRMP HECM Program and Products 5 — Questions and Answers
Question 1: What distinguishes a HECM Standard from a HECM Saver (the historical product distinction before 2017 program changes)?
- HECM Saver had a lower upfront MIP but offered a reduced Principal Limit (Correct answer)
- HECM Standard had no upfront MIP but required full lump-sum disbursement
- HECM Saver offered a higher Principal Limit in exchange for higher ongoing MIP
- HECM Standard was only available for fixed-rate products
Correct answer: HECM Saver had a lower upfront MIP but offered a reduced Principal Limit
The HECM Saver charged a minimal upfront MIP (0.01%) but provided a lower Principal Limit, while HECM Standard charged 2% upfront with a higher Principal Limit.
Question 2: A HECM borrower in a modified term payment plan receives monthly payments AND maintains a line of credit. If the borrower draws from the line of credit, what happens to the monthly payments?
- Monthly payments cease immediately upon any line of credit draw
- Monthly payments continue unchanged; only the line of credit balance is reduced (Correct answer)
- Monthly payments are recalculated based on the remaining Principal Limit
- Monthly payments double to compensate for the reduced line of credit
Correct answer: Monthly payments continue unchanged; only the line of credit balance is reduced
In a modified term plan, the scheduled monthly payments continue unaffected by line of credit draws; the two components are independent within the available Principal Limit.
Question 3: Which statement accurately describes how property taxes affect HECM eligibility in states with homestead exemptions?
- Homestead exemptions disqualify a property from HECM eligibility
- Tax deferrals must be subordinated to the HECM lien to proceed (Correct answer)
- Homestead exemptions automatically satisfy the property tax obligation under HECM
- States with property tax deferrals are excluded from the HECM program
Correct answer: Tax deferrals must be subordinated to the HECM lien to proceed
Property tax deferral programs that create a lien on the property must be subordinated to the HECM first lien to allow the loan to proceed.
Question 4: Under HECM servicing rules, within how many days must the servicer begin foreclosure action after a due-and-payable condition has been established and the grace period has passed?
- 30 days
- 60 days
- 6 months (Correct answer)
- HUD must authorize foreclosure; no set timeline applies
Correct answer: 6 months
Servicers must typically initiate foreclosure within 6 months of the due-and-payable date, with extensions available upon HUD approval.
Question 5: How does the HECM program handle a scenario where two spouses are both listed as borrowers and one moves to a care facility while the other remains in the home?
- The loan becomes immediately due and payable when one borrower leaves the home
- The loan continues as long as at least one borrower still occupies the home as their principal residence (Correct answer)
- The loan is modified to remove the absent borrower's name from the note
- The remaining borrower must requalify for the HECM under current underwriting standards
Correct answer: The loan continues as long as at least one borrower still occupies the home as their principal residence
A HECM is not due and payable until the LAST surviving borrower vacates the property, so one spouse remaining in the home keeps the loan in good standing.
Question 6: What is a 'repair set-aside' in the context of a HECM closing?
- A HUD-required escrow for ongoing property maintenance fees
- Funds withheld from loan proceeds to ensure required property repairs are completed after closing (Correct answer)
- A reserve account the borrower must fund to cover future tax increases
- An amount deducted from proceeds to pay the FHA inspector's ongoing monitoring fee
Correct answer: Funds withheld from loan proceeds to ensure required property repairs are completed after closing
When an appraisal identifies required repairs, a repair set-aside withholds 1.5 times the estimated repair cost from proceeds until repairs are verified as complete.
Question 7: Which best describes the 'expected rate' used in HECM Principal Limit calculations for adjustable-rate products?
- The current note rate at time of application
- The 10-year CMT or SOFR rate plus the lender's margin (Correct answer)
- The average interest rate over the prior 12 months
- The rate set by HUD at the beginning of each fiscal year
Correct answer: The 10-year CMT or SOFR rate plus the lender's margin
For adjustable-rate HECMs, the expected rate equals the 10-year Constant Maturity Treasury (or equivalent SOFR swap rate) plus the lender's margin at the time of application.
CRMP HECM Program and Products 5
What distinguishes a HECM Standard from a HECM Saver (the historical product distinction before 2017 program changes)?