CRMP Loan Disbursement Options and Payment Plans 2 — Questions and Answers
Question 1: A HECM borrower currently on a line of credit wishes to switch to a tenure payment plan. What is the correct procedure?
- Apply for an entirely new HECM loan
- Request a payment plan change through their loan servicer (Correct answer)
- Obtain new HUD-approved counseling before the change is permitted
- Obtain a new property appraisal to confirm continued eligibility
Correct answer: Request a payment plan change through their loan servicer
Borrowers with adjustable-rate HECMs can request a payment plan change from their servicer at any time; this is a built-in flexibility feature of HECM products.
Question 2: Each time a HECM borrower makes a draw from their line of credit, what is the direct financial effect on the loan?
- The outstanding loan balance decreases by the draw amount
- The outstanding loan balance increases by the draw amount (Correct answer)
- The principal limit increases to offset the draw
- The draw is recorded as a credit with no immediate balance impact
Correct answer: The outstanding loan balance increases by the draw amount
Each line of credit draw increases the outstanding loan balance, which then accrues interest and MIP until the loan becomes due and payable.
Question 3: How does the servicer calculate the monthly tenure payment amount for an eligible HECM borrower?
- Using the borrower's age at origination as the sole factor
- Using the remaining principal limit and current interest rate, assuming the youngest borrower lives to age 100 (Correct answer)
- Using a fixed percentage of the original appraised value divided by 12 months
- Using a standardized HUD table based on loan balance only
Correct answer: Using the remaining principal limit and current interest rate, assuming the youngest borrower lives to age 100
Tenure payments are calculated based on the remaining principal limit and current interest rate, assuming the youngest eligible borrower will live to age 100, ensuring payments can continue for that timeframe.
Question 4: What is the primary advantage of a tenure payment plan compared to a term payment plan for a borrower concerned about longevity risk?
- Tenure plans always produce higher monthly payment amounts
- Tenure payments continue for as long as the borrower lives in the home, regardless of how long that is (Correct answer)
- Tenure plans allow the unused line of credit to grow tax-free
- Tenure plans carry lower interest rates than term plans
Correct answer: Tenure payments continue for as long as the borrower lives in the home, regardless of how long that is
With a tenure plan, the borrower receives payments for as long as they live in the home as their primary residence, eliminating the risk of outliving the disbursement period.
Question 5: Under what specific condition may a HECM borrower draw more than 60% of their principal limit in the first 12 months?
- If the borrower is age 80 or older at origination
- If mandatory obligations plus 10% of the principal limit exceed the 60% threshold (Correct answer)
- If the borrower selects a fixed-rate HECM product
- If the property appraised value exceeds the HECM lending limit
Correct answer: If mandatory obligations plus 10% of the principal limit exceed the 60% threshold
If a borrower's mandatory obligations (existing liens, closing costs, required set-asides) plus 10% of the principal limit exceed 60%, they may draw the full amount needed to satisfy those obligations.
Question 6: A HECM borrower established a line of credit 10 years ago and has made no draws whatsoever. Compared to the original credit limit, the available credit is most likely:
- Forfeited due to non-use over an extended period
- Substantially larger due to the line of credit growth feature (Correct answer)
- Identical to the original amount established at closing
- Reduced by accrued MIP charges assessed against the credit line
Correct answer: Substantially larger due to the line of credit growth feature
The unused HECM line of credit grows annually at the loan's interest rate plus MIP rate, so 10 years of non-use would result in substantially more available credit than was originally established.
Question 7: A 'modified term' payment plan combines which two disbursement components?
- Lump sum and tenure payments
- Line of credit and tenure payments
- Line of credit and term payments (Correct answer)
- Lump sum and a line of credit
Correct answer: Line of credit and term payments
A modified term plan combines a line of credit set-aside with monthly term payments for a borrower-specified period, providing both a reserve and fixed-period monthly income.
CRMP Loan Disbursement Options and Payment Plans 2
A HECM borrower currently on a line of credit wishes to switch to a tenure payment plan.
What is the correct procedure?