CRMP Reverse Mortgage Products & Loan Origination 4 — Questions and Answers
Question 1: Under RESPA, what document must a HECM lender provide within 3 business days of receiving a complete loan application?
- Truth-in-Lending Disclosure (TIL)
- Loan Estimate (Correct answer)
- Good Faith Estimate (GFE) and HUD-1 Settlement Statement
- CHARM booklet
Correct answer: Loan Estimate
Following TRID rules, lenders must provide a Loan Estimate within 3 business days of a complete application for most mortgage products including HECMs.
Question 2: A HECM borrower has an existing forward mortgage of $80,000. How must this be handled at closing?
- It can remain in place as a subordinate lien
- It must be paid off with HECM proceeds at or before closing (Correct answer)
- It converts automatically into a second mortgage
- The servicer negotiates a payoff schedule post-closing
Correct answer: It must be paid off with HECM proceeds at or before closing
HECM loans must be in first-lien position, so any existing mortgage must be paid off at closing using loan proceeds.
Question 3: Which interest rate index has historically been used to calculate the adjustable-rate HECM's expected interest rate?
- Prime Rate
- LIBOR
- Constant Maturity Treasury (CMT) or SOFR (Correct answer)
- Federal Funds Rate
Correct answer: Constant Maturity Treasury (CMT) or SOFR
Adjustable-rate HECMs have historically used CMT indices, and SOFR has been introduced as the industry transitions away from LIBOR.
Question 4: What is the purpose of the HECM financial assessment conducted during origination?
- To determine the borrower's credit score eligibility
- To evaluate ability and willingness to meet ongoing property obligations like taxes and insurance (Correct answer)
- To set the loan's interest rate based on creditworthiness
- To calculate the borrower's debt-to-income ratio for qualification
Correct answer: To evaluate ability and willingness to meet ongoing property obligations like taxes and insurance
The financial assessment evaluates whether borrowers can sustain property charges such as taxes, insurance, and HOA fees throughout the loan.
Question 5: A Life Expectancy Set-Aside (LESA) is established when a borrower fails the financial assessment. What does a LESA do?
- Reduces the borrower's interest rate to compensate for risk
- Sets aside a portion of the Principal Limit to pay future property charges (Correct answer)
- Requires a co-signer for the loan
- Limits the loan to a fixed-rate product only
Correct answer: Sets aside a portion of the Principal Limit to pay future property charges
A LESA reserves funds from the Principal Limit specifically to cover property taxes, insurance, and similar charges for the estimated loan duration.
Question 6: Which of the following is a mandatory obligation that must be satisfied with initial HECM proceeds under the first-year draw limitation?
- Home renovation costs elected by the borrower
- Delinquent federal income taxes (Correct answer)
- Property taxes due within 12 months
- HOA dues for the current year
Correct answer: Delinquent federal income taxes
Federal tax liens are mandatory obligations that must be paid at closing from initial HECM proceeds to clear title.
Question 7: When a HECM borrower permanently moves to an assisted living facility, how long do they typically have before the loan becomes due and payable?
- Immediately upon move-out
- 30 days after vacating the property
- 12 consecutive months of non-occupancy (Correct answer)
- 24 months with documentation of intent to return
Correct answer: 12 consecutive months of non-occupancy
HUD allows up to 12 consecutive months of non-occupancy due to physical or mental incapacity before the loan becomes due and payable.
CRMP Reverse Mortgage Products & Loan Origination 4
Under RESPA, what document must a HECM lender provide within 3 business days of receiving a complete loan application?