CRMP HECM Program and Products 3 — Questions and Answers
Question 1: A HECM borrower selects the adjustable-rate product with a monthly adjusting index. What index is most commonly used for HECM ARM products?
- Prime Rate
- Constant Maturity Treasury (CMT) or SOFR (Correct answer)
- Federal Funds Rate
- LIBOR only
Correct answer: Constant Maturity Treasury (CMT) or SOFR
HECM ARM products are indexed to the Constant Maturity Treasury (CMT) or SOFR (which replaced LIBOR), with a margin added to determine the note rate.
Question 2: Which of the following property types is NOT eligible for a HECM loan?
- FHA-approved condominium unit
- Single-family home
- Cooperative (co-op) apartment (Correct answer)
- Two-unit property occupied by the borrower
Correct answer: Cooperative (co-op) apartment
Cooperative apartments are not eligible for HECM financing because borrowers own shares in a corporation rather than holding real property title.
Question 3: Under the HECM Initial Disbursement Limit rules, what percentage of the Principal Limit may a borrower access at closing if they have no mandatory obligations?
- 100% of the Principal Limit
- 75% of the Principal Limit during the first 12 months
- 60% of the Principal Limit during the first 12 months (Correct answer)
- 50% of the Principal Limit during the first 12 months
Correct answer: 60% of the Principal Limit during the first 12 months
Borrowers with no or low mandatory obligations are limited to 60% of the Principal Limit during the first 12 months to reduce early loan balance growth.
Question 4: What is the ongoing Mortgage Insurance Premium (MIP) rate charged annually on the outstanding HECM loan balance?
- 0.5% per year (Correct answer)
- 1.25% per year
- 0.85% per year
- 2.0% per year
Correct answer: 0.5% per year
The ongoing annual MIP for HECM loans is 0.5% of the outstanding loan balance, charged monthly.
Question 5: A non-borrowing spouse (NBS) was properly disclosed and listed at loan origination. The borrowing spouse dies. Under current HUD guidelines, what protection does the NBS have?
- The loan becomes immediately due and payable
- The NBS may remain in the home under Deferral of Due and Payable status (Correct answer)
- The NBS must refinance the HECM into their own name within 6 months
- The NBS receives the remaining line of credit but must vacate within 12 months
Correct answer: The NBS may remain in the home under Deferral of Due and Payable status
A properly disclosed eligible non-borrowing spouse may remain in the home under Deferral of Due and Payable status as long as they continue to meet all HECM obligations.
Question 6: Which statement best describes the HECM fixed-rate product compared to the adjustable-rate HECM?
- The fixed-rate HECM offers all disbursement options including line of credit
- The fixed-rate HECM requires full disbursement of available funds at closing as a lump sum (Correct answer)
- The fixed-rate HECM charges a lower upfront MIP than the adjustable-rate HECM
- The fixed-rate HECM allows ongoing draws up to 10 years after closing
Correct answer: The fixed-rate HECM requires full disbursement of available funds at closing as a lump sum
The HECM fixed-rate product requires a single lump-sum disbursement at closing; ongoing draws, tenure payments, and lines of credit are not available.
Question 7: Under what circumstance may a HECM borrower borrow MORE than 60% of the Principal Limit in the first 12 months without triggering the higher upfront MIP?
- When the borrower is over age 75
- When mandatory obligations (existing mortgage payoff, closing costs) exceed 60% of the Principal Limit (Correct answer)
- When the property is in a federally declared disaster area
- When the borrower has no other retirement income
Correct answer: When mandatory obligations (existing mortgage payoff, closing costs) exceed 60% of the Principal Limit
If mandatory obligations exceed 60% of the Principal Limit, borrowers may draw up to their mandatory obligations plus 10% in the first year while still paying the lower 2% upfront MIP.
