HECM UPDATED CORE EXAM MANUAL QUESTIONS AND
SOLUTIONS RATED A+
✔✔The Maximum Claim Amount (MCA) on a HECM is defined as - ✔✔the lesser of the
home value and HUD lending limit
✔✔The Principal Limit Factor is similar to the _______ in a forward mortgage. -
✔✔Loan-to-Value (LTV)
✔✔Would a 62 year old borrower receive less or more than someone who is 82? -
✔✔Less
✔✔What fee starts out at $2500 and cannot exceed $6000? - ✔✔Mortgage Origination
Fee
✔✔What is the upfront mortgage insurance premium on a HECM loan? - ✔✔2% of the
MCA
✔✔What are the three upfront costs that may be charged on a HECM loan? - ✔✔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? - ✔✔Set-Aside
✔✔T/F: If the borrower keeps the HECM for only a year, the remaining LESA will be
refunded. - ✔✔False
✔✔If required repairs are less than ________% of the _______________ they may be
completed after closing, if the lender agrees. - ✔✔15%; MCA
✔✔How long do tenure payments last? - ✔✔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. - ✔✔False
✔✔The unused part of the line of credit grows at a rate which is equal to: - ✔✔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. - ✔✔False
, ✔✔With an increase in interest rate, will the credit line grow slower or faster? -
✔✔Faster
✔✔If the home value decreases, will the credit line be affected? - ✔✔No
✔✔What payment plan do fixed rate loans require? - ✔✔Single-Disbursement Lump
Sum
✔✔When can changes to borrower's payment plan be made? - ✔✔Anytime, subject to a
$20 change fee
✔✔T/F: The lender can set up the counseling session on the client's behalf. - ✔✔False
✔✔T/F: Prior to counseling, the lender may charge an application fee. - ✔✔False, but
there could be a credit check fee.
✔✔Who reviews the appraisal and other documents prior to the final approval of the
loan? - ✔✔The underwriter
✔✔T/F: All borrowers have to supply detailed documentation of income, assets, and
expenses. - ✔✔True
✔✔What does the borrower have to verify annually? - ✔✔Occupancy
✔✔T/F: If a borrower remarries, the new spouse can be added to the HECM as a
borrower simply by changing the title and notifying the lender. - ✔✔False, they would
have to refinance.
✔✔If a borrower has a tenure plan and then later needs a larger sum to complete a
home repair, they would ask for an ____________ and the future monthly payments
would _________________. - ✔✔Unscheduled draw; decrease
✔✔In an adjustable rate loan, what part of the rate stays the same? - ✔✔The margin
✔✔What is the index that is most often used for HECM interest rates? - ✔✔The
Constant Maturity Treasury (CMT), also called the 1-Year Treasury Rate
✔✔What rate determines the principal limit? - ✔✔The expected rate
✔✔What two items in a HECM grow at the compounding rate? - ✔✔Credit line and loan
balance
SOLUTIONS RATED A+
✔✔The Maximum Claim Amount (MCA) on a HECM is defined as - ✔✔the lesser of the
home value and HUD lending limit
✔✔The Principal Limit Factor is similar to the _______ in a forward mortgage. -
✔✔Loan-to-Value (LTV)
✔✔Would a 62 year old borrower receive less or more than someone who is 82? -
✔✔Less
✔✔What fee starts out at $2500 and cannot exceed $6000? - ✔✔Mortgage Origination
Fee
✔✔What is the upfront mortgage insurance premium on a HECM loan? - ✔✔2% of the
MCA
✔✔What are the three upfront costs that may be charged on a HECM loan? - ✔✔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? - ✔✔Set-Aside
✔✔T/F: If the borrower keeps the HECM for only a year, the remaining LESA will be
refunded. - ✔✔False
✔✔If required repairs are less than ________% of the _______________ they may be
completed after closing, if the lender agrees. - ✔✔15%; MCA
✔✔How long do tenure payments last? - ✔✔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. - ✔✔False
✔✔The unused part of the line of credit grows at a rate which is equal to: - ✔✔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. - ✔✔False
, ✔✔With an increase in interest rate, will the credit line grow slower or faster? -
✔✔Faster
✔✔If the home value decreases, will the credit line be affected? - ✔✔No
✔✔What payment plan do fixed rate loans require? - ✔✔Single-Disbursement Lump
Sum
✔✔When can changes to borrower's payment plan be made? - ✔✔Anytime, subject to a
$20 change fee
✔✔T/F: The lender can set up the counseling session on the client's behalf. - ✔✔False
✔✔T/F: Prior to counseling, the lender may charge an application fee. - ✔✔False, but
there could be a credit check fee.
✔✔Who reviews the appraisal and other documents prior to the final approval of the
loan? - ✔✔The underwriter
✔✔T/F: All borrowers have to supply detailed documentation of income, assets, and
expenses. - ✔✔True
✔✔What does the borrower have to verify annually? - ✔✔Occupancy
✔✔T/F: If a borrower remarries, the new spouse can be added to the HECM as a
borrower simply by changing the title and notifying the lender. - ✔✔False, they would
have to refinance.
✔✔If a borrower has a tenure plan and then later needs a larger sum to complete a
home repair, they would ask for an ____________ and the future monthly payments
would _________________. - ✔✔Unscheduled draw; decrease
✔✔In an adjustable rate loan, what part of the rate stays the same? - ✔✔The margin
✔✔What is the index that is most often used for HECM interest rates? - ✔✔The
Constant Maturity Treasury (CMT), also called the 1-Year Treasury Rate
✔✔What rate determines the principal limit? - ✔✔The expected rate
✔✔What two items in a HECM grow at the compounding rate? - ✔✔Credit line and loan
balance
