CRMP Financial Assessment and Underwriting 2 — Questions and Answers
Question 1: During a HECM financial assessment, a borrower has a monthly residual income of $450. The required residual income threshold for a household of two in a non-Northeast region is $529. What must the lender do?
- Deny the loan outright
- Require a Life Expectancy Set-Aside (LESA) (Correct answer)
- Waive the shortfall if the borrower has good credit
- Approve without condition since the gap is less than $100
Correct answer: Require a Life Expectancy Set-Aside (LESA)
When residual income falls below HUD's threshold, the lender must establish a LESA to cover future property charges.
Question 2: Which of the following credit events during the financial assessment would typically require a satisfactory explanation letter but would NOT automatically disqualify a borrower?
- Active Chapter 7 bankruptcy
- Medical-related derogatory credit (Correct answer)
- Unpaid federal tax lien
- Delinquent FHA-insured mortgage in the past 12 months
Correct answer: Medical-related derogatory credit
HUD guidelines allow medical derogatory credit to be disregarded or explained away as an extenuating circumstance.
Question 3: For HECM financial assessment purposes, how far back must the lender review a borrower's housing payment history?
- 12 months
- 24 months (Correct answer)
- 36 months
- 48 months
Correct answer: 24 months
HUD requires lenders to review 24 months of housing payment history (mortgage or rent) as part of financial assessment.
Question 4: A borrower receives Social Security income of $1,800/month and part-time wages of $600/month. The part-time income has been received for only 14 months. How should the lender treat the part-time wages?
- Include the full $600 since any income counts
- Exclude the wages because 24 months of history is required (Correct answer)
- Include only 50% of the wages
- Average the wages over 14 months and include that figure
Correct answer: Exclude the wages because 24 months of history is required
Employment income typically requires a two-year history to be counted; 14 months does not meet that threshold.
Question 5: A Fully-Funded LESA differs from a Partially-Funded LESA in that the Fully-Funded LESA:
- Covers only insurance premiums, not taxes
- Is funded entirely by loan proceeds upfront to pay all future property charges (Correct answer)
- Requires the borrower to contribute monthly deposits
- Is only available for borrowers under age 72
Correct answer: Is funded entirely by loan proceeds upfront to pay all future property charges
A Fully-Funded LESA is established when both credit and residual income are unsatisfactory, funding all projected property charges from loan proceeds.
Question 6: When assessing a borrower's cash flow, which of the following recurring obligations is NOT typically included as a monthly liability?
- Minimum credit card payments
- Car loan payments
- Utility bills (Correct answer)
- Student loan payments
Correct answer: Utility bills
Utility bills are accounted for in the residual income budget, not counted as a credit liability in the debt ratio.
Question 7: A borrower is in a repayment plan with the IRS for a federal tax debt of $12,000. How should the lender treat this during financial assessment?
- Disqualify the borrower automatically since federal debt is involved
- Count the repayment plan payment as a monthly liability if in good standing (Correct answer)
- Ignore it because a repayment plan resolves the lien
- Require the debt to be paid in full before closing
Correct answer: Count the repayment plan payment as a monthly liability if in good standing
An IRS repayment plan in good standing is treated as a monthly liability rather than a disqualifying event.
CRMP Financial Assessment and Underwriting 2
During a HECM financial assessment, a borrower has a monthly residual income of $450.
The required residual income threshold for a household of two in a non-Northeast region is $529.
What must the lender do?