CRMP Regulatory Compliance & Ethical Practices 4 — Questions and Answers
Question 1: Which Mortgagee Letter introduced the Financial Assessment requirement for HECM applications?
- ML 2013-27
- ML 2014-22 (Correct answer)
- ML 2015-06
- ML 2016-10
Correct answer: ML 2014-22
HUD Mortgagee Letter 2014-22, effective March 2, 2015, introduced the Financial Assessment requirement to evaluate a borrower's willingness and capacity to meet ongoing loan obligations.
Question 2: Under RESPA, which payment arrangement between a HECM lender and a housing counseling agency would be a violation?
- Providing free marketing materials to counselors
- Paying a fee to a counselor for each referred borrower (Correct answer)
- Listing approved counselors on the lender's website
- Funding a general financial literacy workshop
Correct answer: Paying a fee to a counselor for each referred borrower
RESPA Section 8 prohibits kickbacks and unearned fees, including payments to counselors for referring borrowers to a specific lender.
Question 3: A HECM originator is also a licensed real estate agent. Which scenario represents an ethical conflict requiring disclosure?
- The originator recommends a HUD-approved counselor
- The originator earns a commission by selling the borrower a home being financed with a HECM for Purchase (Correct answer)
- The originator explains HECM loan limits to the borrower
- The originator verifies the borrower's age with a government ID
Correct answer: The originator earns a commission by selling the borrower a home being financed with a HECM for Purchase
Earning both a sales commission and origination fee on the same transaction is a dual-role conflict that must be disclosed to the borrower under NRMLA ethics guidelines.
Question 4: Under HUD guidelines, the Life Expectancy Set-Aside (LESA) is established to ensure borrowers can pay:
- Monthly mortgage insurance premiums only
- Property charges including taxes and insurance over the borrower's expected tenure (Correct answer)
- Closing costs and origination fees
- Monthly servicing fees for the loan term
Correct answer: Property charges including taxes and insurance over the borrower's expected tenure
A LESA reserves funds from the loan proceeds to cover property taxes, homeowner's insurance, and other property charges for the borrower's projected life expectancy.
Question 5: What is the purpose of the Right of Rescission under TILA for HECM transactions?
- It allows the lender to cancel the loan within three days of closing
- It gives borrowers three business days after closing to cancel the loan without penalty (Correct answer)
- It permits HUD to rescind FHA insurance in cases of fraud
- It allows borrowers to rescind the counseling requirement
Correct answer: It gives borrowers three business days after closing to cancel the loan without penalty
Under TILA, borrowers have a three-business-day right of rescission after closing on a HECM, during which they can cancel without penalty.
Question 6: Which of the following would constitute a RESPA Section 8 violation in a HECM transaction?
- Charging a lender-paid appraisal fee
- Accepting a referral fee from a title company for directing business to them (Correct answer)
- Charging a HUD-allowable origination fee
- Collecting the upfront MIP at closing
Correct answer: Accepting a referral fee from a title company for directing business to them
Accepting referral fees or kickbacks from settlement service providers such as title companies violates RESPA Section 8's prohibition on unearned fees.
Question 7: An applicant's credit report shows multiple recent late payments on property taxes. Under Financial Assessment rules, a lender should consider:
- Denying the loan immediately without further review
- Evaluating the circumstances and potentially requiring a fully-funded LESA (Correct answer)
- Ignoring the late payments if the borrower has sufficient equity
- Requiring the borrower to refinance existing debts before proceeding
Correct answer: Evaluating the circumstances and potentially requiring a fully-funded LESA
Financial Assessment requires lenders to evaluate the borrower's credit history in context; a pattern of property tax delinquency may result in a mandatory fully-funded LESA.
CRMP Regulatory Compliance & Ethical Practices 4
Which Mortgagee Letter introduced the Financial Assessment requirement for HECM applications?