CRMP Application and Origination 2 — Questions and Answers
Question 1: A borrower's non-borrowing spouse is 57 years old and is listed on the title. What must occur before the HECM loan can close?
- The spouse must be removed from title
- The spouse must co-sign the note
- The spouse must attend counseling and be designated as an Eligible Non-Borrowing Spouse (Correct answer)
- The loan must be denied until the spouse turns 62
Correct answer: The spouse must attend counseling and be designated as an Eligible Non-Borrowing Spouse
A non-borrowing spouse under 62 must be designated as an Eligible Non-Borrowing Spouse and attend counseling so deferral protections apply after the borrower's death.
Question 2: Which document formally initiates the HECM application process and must be signed by the borrower?
- Loan Estimate
- Initial Counseling Certificate
- Uniform Residential Loan Application (1003) (Correct answer)
- Notice of Right to Cancel
Correct answer: Uniform Residential Loan Application (1003)
The Uniform Residential Loan Application (Form 1003) is the standard document that formally initiates any mortgage application, including HECMs.
Question 3: For a HECM for Purchase, what is the primary source of the required down payment?
- A seller-held second mortgage
- The borrower's own funds or gift proceeds (Correct answer)
- A bridge loan from the reverse mortgage lender
- Funds borrowed from the borrower's 401(k)
Correct answer: The borrower's own funds or gift proceeds
HUD requires that the down payment for a HECM for Purchase come from the borrower's own funds or eligible gifts, not borrowed funds.
Question 4: What is the purpose of the expected average mortgage interest rate (AEI/Expected Rate) in HECM calculations?
- It determines the monthly service fee set-aside amount
- It is used to calculate the principal limit at origination (Correct answer)
- It sets the interest rate charged to the borrower each month
- It is used exclusively for adjustable-rate HECMs
Correct answer: It is used to calculate the principal limit at origination
The expected (average) interest rate is used in HUD's principal limit factor tables to determine how much a borrower can receive at origination.
Question 5: A borrower owns a home worth $900,000. What is the maximum property value used to calculate the HECM principal limit?
- $900,000
- $822,375 (Correct answer)
- $726,200
- $647,200
Correct answer: $822,375
HUD caps the property value used in HECM calculations at the national lending limit (FHA maximum claim amount), which is $822,375 for 2023.
Question 6: Which flood zone designation generally makes a property ineligible for a HECM unless flood insurance is obtained?
- Zone X
- Zone C
- Zone A or V (Correct answer)
- Zone B
Correct answer: Zone A or V
Properties in FEMA Special Flood Hazard Areas (Zone A or V) require mandatory flood insurance as a condition of HECM eligibility.
Question 7: If a HECM borrower has an outstanding federal tax lien on the property, what must typically happen before closing?
- The lien is automatically subordinated to the HECM
- The lien must be satisfied or a payment plan approved by the IRS must be in place (Correct answer)
- The lien is ignored if the amount is under $10,000
- The property must be re-titled to remove the lien
Correct answer: The lien must be satisfied or a payment plan approved by the IRS must be in place
Federal tax liens must be paid off or a subordination/payment agreement must be in place because the HECM must hold a first-lien position.
CRMP Application and Origination 2
A borrower's non-borrowing spouse is 57 years old and is listed on the title.
What must occur before the HECM loan can close?