HECM Exam questions and correct answers

HECM Exam questions and correct answers A reverse mortgage is... - ANSWERS a loan against the value of a home that provides cash advances to a borrower, requiring no repayment until a future time. A reverse mortgage is different from a home equity loan because - ANSWERS You do not have to make monthly repayments on a reverse mortgage A reverse mortgage must be repaid - ANSWERS When the last eligible borrower dies, sells, or permanently moves away The purpose of a reverse mortgage is most often - ANSWERS To generate cash Reverse mortgages are typically loans with _______debt and _________ equity - ANSWERS Rising debt and falling equity What happens when a reverse mortgage becomes due and payable? - ANSWERS The borrower or their heirs repay the loan if able The "non-recourse" limit on a reverse mortgage means... - ANSWERS The borrower cannot be required to repay more than the value of the home. This is where mortgage insurance comes in. Also, the borrower's estate and heirs are protected against deficiency judgments. What is the purpose of reverse mortgage insurance? - ANSWERS It protects the lenders against loan losses, protects the borrowers with a non-recourse limit, and lets the borrowers remain in their homes as long as they choose. The risk of loan losses in reverse mortgage lending is controlled by... - ANSWERS controlling the amount of loan advances and charging a premium on all loans to create a reserve fund. When a HECM loan is repaid, the borrower must pay back... - ANSWERS The funds received plus loan fees and interest compounded on the entire balance. What happens when an adjustable interest rate on a reverse mortgage goes up? - ANSWERS The loan balance grows faster, as well as as the creditline. What are the 3 eligibility requirements for HECM borrowers? - ANSWERS 1. Age 62+ 2. Owns the home 3. Live in the home as principal residence (~6 months out of the year) If a property is held as a life estate, who has to agree in order to allow a HECM to be approved? - ANSWERS Owners of "remainder interest" or the one living in the house When a property is placed in a trust, the three "roles" are the... - ANSWERS Grantor, beneficiaries, and trustee If a property is owned by a trust, who has to be at least 62 years old in order for the property to be HECM-eligible? - ANSWERS Current beneficiaries T/F: A HECM loan is a loan against the equity in a home - ANSWERS False; a HECM is a long against the entire value of the house What 3 factors determine the loan amount for a HECM? - ANSWERS 1. Age 2. Expected Rate 3. Maximum Claim Amount (MCA) The Maximum Claim Amount (MCA) on a HECM is defined as - ANSWERS the lesser of the home value and HUD lending limit The Principal Limit Factor is similar to the _______ in a forward mortgage. - ANSWERS Loan-to-Value (LTV) Would a 62 year old borrower receive less or more than someone who is 82? - ANSWERS Less What fee starts out at $2500 and cannot exceed $6000? - ANSWERS Mortgage Origination Fee What is the upfront mortgage insurance premium on a HECM loan? - ANSWERS 2% of the MCA What are the three upfront costs that may be charged on a HECM loan? - ANSWERS 1. Origination Fee 2. Upfront MIP 3. Third-Party Costs What is the term for the money that is reserved from the principal limit for a future purpose? - ANSWERS Set-Aside T/F: If the borrower keeps the HECM for only a year, the remaining LESA will be refunded. - ANSWERS False If required repairs are less than ________% of the _______________ they may be completed after closing, if the lender agrees. - ANSWERS 15%; MCA How long do tenure payments last? - ANSWERS As long as at least one eligible borrower lives in the home T/F: Changes in the interest rate after closing will affect the amount of monthly term payments. - ANSWERS False The unused part of the line of credit grows at a rate which is equal to: - ANSWERS Interest + Annual MIP (0.5%) or Compounding Rate T/F: If the borrower dies, the remaining credit line can be used to pay off part of the loan balance. - ANSWERS False With an increase in interest rate, will the credit line grow slower or faster? - ANSWERS Faster If the home value decreases, will the credit line be affected? - ANSWERS No What payment plan do fixed rate loans require? - ANSWERS Single-Disbursement Lump Sum When can changes to borrower's payment plan be made? - ANSWERS Anytime, subject to a $20 change fee T/F: The lender can set up the counseling session on the client's behalf. - ANSWERS False T/F: Prior to counseling, the lender may charge an application fee. - ANSWERS False, but there could be a credit ch