HECM LATEST 2026 EXAMINATION SET QUESTIONS AND
SOLUTIONS RATED A+
✔✔LINE OF CREDIT - ✔✔Borrowers can draw up to a maximum amount at times and
in
amounts they choose until the creditline is exhausted. The amount of cash
available grows larger each month until then.
✔✔MODIFIED TERM - ✔✔Borrower may combine a line of credit with monthly
payments for fixed number of months (term option).
✔✔MODIFIED TENURE - ✔✔Borrower may combine a line of credit with monthly
payments for as long as one borrower remains in the home (tenure option).
✔✔A HECM does not have to be repaid - ✔✔until the last surviving borrower
dies, sells the home, or permanently moves from the home. Borrowers may
partially or fully repay the loan balance at any time without any penalty.
✔✔Property Appraisal - ✔✔generally an advance payment of about $350, but may be
refunded to borrower and added to loan balance at loan closing
✔✔Credit Report - ✔✔generally an advance payment of about $25 for a simplified credit
report, but may be refunded to borrower and added to the loan balance at
closing.
✔✔Standard Local Closing Costs - ✔✔title search and insurance, surveys, required
inspections, recording fees, mortgage-related taxes, etc.
✔✔Hazard or Flood Insurance Premiums - ✔✔replacement value coverage is required;
may require advance premium to be paid at closing if coverage is increased.
✔✔Origination Fee - ✔✔may vary by lender. Maximum origination fee is 2% of home
value up to $200,000 plus 1% of any amount over $200,000. Lenders are
permitted to use a minimum origination fee of $2500 and may not charge more
than $6000 regardless of home value. (Mortgagee Letter 08-34)
✔✔Mortgage Insurance Premium - ✔✔up-front payment equals two percent of the
Maximum Claim Amount, paid or financed at closing, plus an annual premium of
1/2 percent, or 50 basis points, charged on the rising loan balance.
✔✔Servicing Fee - ✔✔flat monthly charge, if not included in interest rate; cannot
exceed
$30 per month for HECMs with annually adjusting interest, and $35 per month for
HECMs with monthly adjustable interest. (Mortgagee Letter 98-3).
, ✔✔Interest - ✔✔is charged on all payments made to the borrower and on all loan costs
that have been added to the loan balance. Interest rates may be either fixed or
adjustable.
✔✔Annually adjustable interest rates - ✔✔cannot vary by more than 2 percentage
points
per year, or 5 points over the life of the loan. Lenders may also offer a
monthlyadjustable
rate with only a lifetime cap established by the lender.
✔✔Interest rate adjustments - ✔✔do not affect the amount of a monthly advance, but
they
do change the rate at which a creditline grows larger. They also affect how
quickly the HECM loan balance grows.
✔✔Home value - ✔✔The first factor to be considered is the value of the home,
as determined by a HUD-approved appraiser. This is the market value of
the property at the time the loan is closed.
✔✔The rate of interest to be charged on the loan matters because: - ✔✔The higher the
rate of interest, the larger the accrued interest charges will be over time. If more of the
borrower's home value will be consumed by interest charges, then
less will be available for the borrower to use for their own purposes.
✔✔Initial Closing Costs - ✔✔Since most borrowers finance the initial
costs into the loan, part of the available loan amount will be
consumed by those costs. The higher the costs, the less money is
left for payments to the borrower.
✔✔Set-asides are - ✔✔used to reserve loan proceeds for a
particular future use. These reserved amounts, though not added
onto the loan balance until actually drawn, reduce the amount of
funds available for other purposes. The most common types of setasides
are for servicing fees (currently required on all HECMs),
required repairs, and taxes/insurance.
✔✔Service fee set-aside - ✔✔The monthly servicing fee may not
exceed $30 for HECMs with annually adjusting interest, and
may not exceed $35 for HECMs with monthly adjusting
interest.
✔✔Principal limit is calculated - ✔✔by multiplying the Maximum Claim
Amount by a "principal limit factor".
✔✔A reverse mortgage is
SOLUTIONS RATED A+
✔✔LINE OF CREDIT - ✔✔Borrowers can draw up to a maximum amount at times and
in
amounts they choose until the creditline is exhausted. The amount of cash
available grows larger each month until then.
✔✔MODIFIED TERM - ✔✔Borrower may combine a line of credit with monthly
payments for fixed number of months (term option).
✔✔MODIFIED TENURE - ✔✔Borrower may combine a line of credit with monthly
payments for as long as one borrower remains in the home (tenure option).
✔✔A HECM does not have to be repaid - ✔✔until the last surviving borrower
dies, sells the home, or permanently moves from the home. Borrowers may
partially or fully repay the loan balance at any time without any penalty.
✔✔Property Appraisal - ✔✔generally an advance payment of about $350, but may be
refunded to borrower and added to loan balance at loan closing
✔✔Credit Report - ✔✔generally an advance payment of about $25 for a simplified credit
report, but may be refunded to borrower and added to the loan balance at
closing.
✔✔Standard Local Closing Costs - ✔✔title search and insurance, surveys, required
inspections, recording fees, mortgage-related taxes, etc.
✔✔Hazard or Flood Insurance Premiums - ✔✔replacement value coverage is required;
may require advance premium to be paid at closing if coverage is increased.
✔✔Origination Fee - ✔✔may vary by lender. Maximum origination fee is 2% of home
value up to $200,000 plus 1% of any amount over $200,000. Lenders are
permitted to use a minimum origination fee of $2500 and may not charge more
than $6000 regardless of home value. (Mortgagee Letter 08-34)
✔✔Mortgage Insurance Premium - ✔✔up-front payment equals two percent of the
Maximum Claim Amount, paid or financed at closing, plus an annual premium of
1/2 percent, or 50 basis points, charged on the rising loan balance.
✔✔Servicing Fee - ✔✔flat monthly charge, if not included in interest rate; cannot
exceed
$30 per month for HECMs with annually adjusting interest, and $35 per month for
HECMs with monthly adjustable interest. (Mortgagee Letter 98-3).
, ✔✔Interest - ✔✔is charged on all payments made to the borrower and on all loan costs
that have been added to the loan balance. Interest rates may be either fixed or
adjustable.
✔✔Annually adjustable interest rates - ✔✔cannot vary by more than 2 percentage
points
per year, or 5 points over the life of the loan. Lenders may also offer a
monthlyadjustable
rate with only a lifetime cap established by the lender.
✔✔Interest rate adjustments - ✔✔do not affect the amount of a monthly advance, but
they
do change the rate at which a creditline grows larger. They also affect how
quickly the HECM loan balance grows.
✔✔Home value - ✔✔The first factor to be considered is the value of the home,
as determined by a HUD-approved appraiser. This is the market value of
the property at the time the loan is closed.
✔✔The rate of interest to be charged on the loan matters because: - ✔✔The higher the
rate of interest, the larger the accrued interest charges will be over time. If more of the
borrower's home value will be consumed by interest charges, then
less will be available for the borrower to use for their own purposes.
✔✔Initial Closing Costs - ✔✔Since most borrowers finance the initial
costs into the loan, part of the available loan amount will be
consumed by those costs. The higher the costs, the less money is
left for payments to the borrower.
✔✔Set-asides are - ✔✔used to reserve loan proceeds for a
particular future use. These reserved amounts, though not added
onto the loan balance until actually drawn, reduce the amount of
funds available for other purposes. The most common types of setasides
are for servicing fees (currently required on all HECMs),
required repairs, and taxes/insurance.
✔✔Service fee set-aside - ✔✔The monthly servicing fee may not
exceed $30 for HECMs with annually adjusting interest, and
may not exceed $35 for HECMs with monthly adjusting
interest.
✔✔Principal limit is calculated - ✔✔by multiplying the Maximum Claim
Amount by a "principal limit factor".
✔✔A reverse mortgage is
