I85PREP
⌘ K
NRMLA CRMP study materials
NRMLA CRMP study resources

NRMLA CRMP practice questions

One question at a time. Build your NRMLA CRMP understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Reverse mortgage regulations and program details

Under the HECM program, what is the earliest age at which a borrower can typically qualify for a reverse mortgage?

  1. 62 Correct answer.
  2. 59½
  3. 55
  4. 70

Explanation

HECM eligibility requires the youngest borrower on title to be at least 62 years old. Spouses under 62 may be treated as non-borrowing spouses but cannot be borrowers themselves.

Question 2Reverse mortgage regulations and program details

Which type of HECM is designed for a borrower purchasing a new home rather than refinancing an existing one?

  1. HECM Fixed
  2. HECM Saver
  3. HECM Standard
  4. HECM for Purchase Correct answer.

Explanation

HECM for Purchase allows a borrower 62 or older to buy a new primary residence using a single transaction that combines a down payment with reverse mortgage proceeds. Standard, Saver, and Fixed describe rate or insurance structures, not a purchase transaction.

Question 3Reverse mortgage regulations and program details

What is the primary purpose of the HECM counseling requirement before loan application?

  1. To appraise the property value
  2. To verify the borrower's credit score
  3. To ensure the borrower understands the costs, obligations, and alternatives Correct answer.
  4. To calculate the borrower's income tax liability

Explanation

Independent counseling must occur before the borrower incurs any fees, and its purpose is to confirm the borrower understands the loan's costs, obligations, and alternatives. Counseling is not a credit, appraisal, or tax function.

Question 4Reverse mortgage regulations and program details

For a HECM, when does the loan typically become due and payable?

  1. Ten years after closing
  2. When the loan balance reaches 50 percent of the value
  3. When the last borrower permanently moves out or dies Correct answer.
  4. When the borrower turns 80

Explanation

A HECM becomes due and payable when the last surviving borrower no longer occupies the home as a principal residence, whether due to death, sale, or permanent move. There is no fixed term or age trigger.

Question 5Reverse mortgage regulations and program details

Which of the following best describes a non-recourse feature of a HECM?

  1. The loan must be repaid within one year of death
  2. The lender's recovery is generally limited to the value of the home Correct answer.
  3. The lender can pursue the borrower's other assets
  4. The borrower's heirs are personally liable for any shortfall

Explanation

HECMs are non-recourse, meaning the lender's claim is generally limited to the property's value, and neither the borrower nor the estate is personally liable for a shortfall. This protects the borrower's other assets.

Question 6Reverse mortgage regulations and program details

What does the initial mortgage insurance premium (MIP) on a HECM protect against?

  1. Interest rate fluctuations
  2. Lender losses when loan balances exceed property value Correct answer.
  3. Borrower default on property taxes
  4. Title defects

Explanation

The HECM MIP funds the Mutual Mortgage Insurance Fund, which reimburses lenders when the loan balance exceeds the home's value. It does not cover tax defaults, rate changes, or title issues.

Question 7Reverse mortgage regulations and program details

Which document must a HECM borrower receive that summarizes the loan terms, costs, and borrower obligations?

  1. HECM loan amortization schedule Correct answer.
  2. Truth in Lending disclosure only
  3. Closing Disclosure only
  4. Good Faith Estimate only

Explanation

The HECM loan amortization schedule projects how the balance grows over time and is a required disclosure. Good Faith Estimate, Truth in Lending, and Closing Disclosure are separate required disclosures but do not summarize the projected growth of the reverse mortgage balance.

Question 8Reverse mortgage regulations and program details

What is the maximum claim amount (MCA) used for in a HECM?

  1. It sets the borrower's interest rate
  2. It caps the loan amount used to calculate principal limit and MIP Correct answer.
  3. It sets the counseling fee
  4. It determines the property tax rate

Explanation

The MCA is the lesser of the appraised value or the HUD lending limit, and it is used to calculate the principal limit and mortgage insurance premiums. It does not set rates, taxes, or counseling fees.

Question 9Reverse mortgage regulations and program details

A borrower wants a reverse mortgage but does not want to make monthly payments on the loan balance. How does a HECM generally handle this?

  1. The borrower must make interest-only payments
  2. The loan balance grows and is repaid when the loan matures Correct answer.
  3. The borrower must pay down principal monthly
  4. The loan converts to a traditional mortgage

Explanation

HECM borrowers are not required to make monthly principal and interest payments; instead, accrued interest and MIP are added to the balance, which is repaid at maturity. Borrowers must still pay taxes, insurance, and maintenance.

Question 10Reverse mortgage regulations and program details

Which of the following is a borrower obligation that, if unmet, can cause a HECM to become due and payable?

  1. Failing to file a tax return
  2. Failing to renew a driver's license
  3. Failing to maintain a checking account
  4. Failing to pay property taxes and hazard insurance Correct answer.

Explanation

HECM borrowers must continue to pay property taxes, hazard insurance, and maintain the property. Failure to meet these obligations is a default that can trigger maturity. The other items are unrelated to HECM obligations.

Question 11Reverse mortgage regulations and program details

How is the principal limit on a HECM calculated?

  1. Maximum claim amount multiplied by the principal limit factor Correct answer.
  2. Appraised value divided by the borrower's age
  3. Loan balance multiplied by the interest rate
  4. Counseling fee multiplied by the number of borrowers

Explanation

The principal limit equals the MCA times the principal limit factor, which depends on the borrower's age, expected rate, and MIP. The other formulas do not reflect HUD's calculation method.

Question 12Reverse mortgage regulations and program details

A borrower selects a fixed-rate HECM. Which payment option is typically available?

  1. Monthly term payments
  2. Single lump-sum disbursement Correct answer.
  3. Growing line of credit
  4. Monthly tenure payments

Explanation

Fixed-rate HECMs generally allow only a single lump-sum draw at closing. Adjustable-rate HECMs offer tenure payments, term payments, and a growing line of credit.

Question 13Reverse mortgage regulations and program details

What is the purpose of the HECM Saver option?

  1. To remove the non-recourse feature
  2. To eliminate the requirement for counseling
  3. To reduce the upfront mortgage insurance premium Correct answer.
  4. To waive property tax obligations

Explanation

HECM Saver reduces the upfront MIP in exchange for a lower principal limit. Counseling, non-recourse protection, and tax obligations remain unchanged.

Question 14Reverse mortgage regulations and program details

When must a HECM borrower complete independent counseling?

  1. Before the loan application or before incurring any loan fees Correct answer.
  2. Only if the borrower requests it
  3. At the first annual review
  4. After closing

Explanation

HUD requires counseling to occur before the borrower applies or incurs any fees, ensuring informed consent. It is mandatory, not optional, and cannot be deferred to closing or annual review.

Question 15Reverse mortgage regulations and program details

Which of the following is a permissible use of HECM proceeds by the borrower?

  1. Purchasing a vacation home
  2. Paying off an existing mortgage Correct answer.
  3. Buying stocks
  4. Funding a business venture

Explanation

HECM proceeds may be used to pay off an existing mortgage on the subject property, which is a common use. Investment, business, and second-home purchases are not permissible uses of HECM proceeds.

Question 16Reverse mortgage regulations and program details

What happens if a HECM borrower fails to maintain the property in reasonable condition?

  1. The loan term is extended by ten years
  2. The loan automatically converts to a fixed rate
  3. The borrower receives a refund of MIP
  4. The lender may declare the loan due and payable Correct answer.

Explanation

Failure to maintain the property is a default that can cause the loan to become due and payable. HECMs do not convert rate types, refund MIP, or extend terms for maintenance failures.

Question 17Reverse mortgage regulations and program details

Which party is responsible for certifying that a HECM borrower has received counseling?

  1. The appraiser
  2. The lender Correct answer.
  3. The real estate agent
  4. The title company

Explanation

The lender must obtain and retain the counseling certificate before proceeding with the loan. Appraisers, title companies, and agents do not certify counseling.

Question 18Reverse mortgage regulations and program details

A non-borrowing spouse under age 62 remains in the home after the borrowing spouse dies. Under current HUD rules, what protection generally applies?

  1. The loan is automatically forgiven
  2. The non-borrowing spouse becomes personally liable for the loan
  3. The non-borrowing spouse must vacate immediately
  4. The non-borrowing spouse may remain if the loan was properly structured and obligations are met Correct answer.

Explanation

HUD rules allow an eligible non-borrowing spouse to remain in the home after the borrowing spouse's death if the loan was properly structured and the spouse continues to meet obligations. The spouse does not become personally liable, and the loan is not forgiven.

Question 19Reverse mortgage regulations and program details

What is the purpose of the HECM lending limit set by HUD?

  1. To establish the property tax rate
  2. To cap the appraised value used for calculating the maximum claim amount Correct answer.
  3. To set the borrower's interest rate
  4. To determine the counseling fee

Explanation

The HUD lending limit caps the value used to calculate the MCA, which in turn affects the principal limit and MIP. It does not set rates, counseling fees, or taxes.

Question 20Reverse mortgage regulations and program details

Which of the following best describes a tenure payment plan under a HECM?

  1. Payments for a fixed number of months
  2. Equal monthly payments for as long as the borrower lives in the home Correct answer.
  3. A line of credit the borrower draws upon
  4. A single lump sum at closing

Explanation

A tenure plan provides equal monthly payments for as long as the borrower occupies the home as a principal residence. Term plans pay for a fixed period, lump sums pay once, and lines of credit are drawn as needed.

Question 21Reverse mortgage regulations and program details

A borrower's HECM line of credit grows over time. What primarily drives that growth?

  1. The line is fixed and does not grow
  2. The line grows only when the borrower requests it
  3. The line grows only with inflation
  4. The unused portion grows at the note rate plus MIP Correct answer.

Explanation

The unused portion of an adjustable-rate HECM line of credit grows at the note rate plus the mortgage insurance premium, providing a growing borrowing capacity. It is not tied to inflation alone and is not fixed.

Question 22Reverse mortgage regulations and program details

What is the consequence of a HECM borrower allowing the home to be uninsured against hazards?

  1. The borrower receives a lower interest rate
  2. The lender may force-place insurance and charge the borrower Correct answer.
  3. The MCA is recalculated upward
  4. The loan is automatically forgiven

Explanation

If a borrower fails to maintain hazard insurance, the lender may force-place coverage and charge the cost to the borrower's account. The loan is not forgiven, rates do not decrease, and the MCA is not adjusted upward.

Question 23Reverse mortgage regulations and program details

Which statement about the HECM borrower's obligation to occupy the property is accurate?

  1. The borrower may leave the home vacant indefinitely
  2. The borrower must occupy the home as a principal residence Correct answer.
  3. The borrower may use the home only as a vacation property
  4. The borrower may rent the home long-term without consequence

Explanation

A HECM requires the home to be the borrower's principal residence. Long-term rental, vacation use, or indefinite vacancy can cause the loan to become due and payable.

Question 24Reverse mortgage regulations and program details

A borrower refinances an existing HECM into a new HECM. What is a key regulatory consideration?

  1. The old loan's MIP is fully refunded
  2. The new loan is exempt from the non-recourse rule
  3. The new loan automatically inherits the old interest rate
  4. The borrower may be required to complete counseling again and must meet current program rules Correct answer.

Explanation

Refinancing into a new HECM generally requires new counseling and compliance with current program rules. The new loan does not inherit the old rate, MIP is not fully refunded, and non-recourse protection still applies.

Question 25Reverse mortgage regulations and program details

Which of the following is a required borrower disclosure under the HECM program regarding total annual loan cost?

  1. The borrower's credit score
  2. The counselor's home address
  3. The Total Annual Loan Cost (TALC) rate Correct answer.
  4. The appraiser's license number

Explanation

The TALC disclosure shows the projected annual cost of the loan, including interest and MIP, over different time periods. Credit scores, appraiser license numbers, and counselor addresses are not TALC disclosures.

Question 26Reverse mortgage regulations and program details

Under HUD rules, a HECM borrower may be required to set aside funds from the loan proceeds at closing. What is the primary purpose of a fully funded Life Expectancy Set-Aside (LESA)?

  1. To fund the lender's servicing fee escrow for the first year
  2. To pay property charges such as taxes and hazard insurance over the projected loan term Correct answer.
  3. To cover the cost of the mandatory independent counseling session
  4. To prepay the upfront mortgage insurance premium in installments

Explanation

A LESA is a portion of the principal limit withheld at closing to pay property charges-property taxes, hazard insurance, and any flood or other required insurance-on the borrower's behalf. It is sized using the borrower's life expectancy and the projected cost of those charges. Its purpose is to protect the borrower and the FHA insurance fund from tax and insurance defaults.

Question 27Reverse mortgage regulations and program details

A HECM borrower with an adjustable-rate loan makes no payments on the loan balance. How does the loan balance evolve over time?

  1. It grows as accrued interest, mortgage insurance premiums, and servicing fees are added to the principal Correct answer.
  2. It is recalculated annually against the home's appraised value
  3. It stays flat until the loan matures because unpaid interest is not capitalized
  4. It declines by the amount of the monthly servicing fee that the lender absorbs

Explanation

In a HECM, the borrower is not required to make payments, so interest, ongoing MIP, and servicing fees are added to the outstanding balance. Because the balance compounds, it rises over time and reduces the borrower's remaining equity. This non-recourse growth is a core feature of the program.

Question 28Reverse mortgage regulations and program details

Which statement accurately describes how HECM loan proceeds are disbursed at closing?

  1. All borrowers must take the full principal limit as a single lump sum at closing
  2. Disbursements must be made in equal monthly installments regardless of plan
  3. Proceeds are disbursed according to the payment option selected, with mandatory obligations paid first Correct answer.
  4. Proceeds are held by HUD and released only after the borrower's death

Explanation

HECM proceeds are applied first to mandatory obligations such as the existing mortgage payoff, closing costs, and any required set-asides. Any remaining funds are then made available under the borrower's chosen payment option, whether a line of credit, monthly payments, or a combination. A single mandatory lump sum for everything is not how the program operates.

Question 29Reverse mortgage regulations and program details

A HECM borrower wants access to funds only as needed and wants unused funds to remain available for future draws. Which payment option best matches this goal?

  1. Tenure payment plan
  2. Modified term plan
  3. Modified tenure plan
  4. Line of credit Correct answer.

Explanation

A line of credit lets the borrower draw funds at will up to the available amount, and the unused portion grows over time at the note rate plus MIP. Tenure and term plans instead provide scheduled monthly advances, so they do not preserve a growing pool for future needs. The line of credit is therefore the option designed for flexible, as-needed access.

Question 30Reverse mortgage regulations and program details

Which individual is generally required to receive HECM counseling before closing?

  1. The appraiser assigned to the property
  2. The lender's loan officer
  3. Each borrower and any non-borrowing spouse Correct answer.
  4. The title company's closing agent

Explanation

HUD requires that every borrower, and any non-borrowing spouse, complete independent counseling with a HUD-approved counselor before the loan closes. The counselor must be independent of the lender. Appraisers, closing agents, and loan officers are not the parties the counseling requirement is designed to protect.

Question 31Reverse mortgage regulations and program details

What is the role of the HECM counselor's certificate in the loan file?

  1. It documents that the required counseling occurred and is a condition of loan insurability Correct answer.
  2. It certifies the property's appraised value for underwriting
  3. It replaces the borrower's signed loan application
  4. It authorizes the lender to charge the upfront mortgage insurance premium

Explanation

The counseling certificate evidences that the borrower completed independent counseling, and the loan cannot be insured without it. Lenders must obtain the certificate before closing. It does not set value, authorize MIP, or substitute for the application.

Question 32Reverse mortgage regulations and program details

If a HECM borrower sells the home and pays off the loan, what happens to any proceeds exceeding the amount owed?

  1. The excess is returned to the borrower or the borrower's estate Correct answer.
  2. The excess is retained by the lender as a payoff fee
  3. The excess is held in escrow for five years
  4. The excess is remitted to HUD as an insurance premium adjustment

Explanation

A HECM is a non-recourse loan, so the borrower or estate owes no more than the lesser of the loan balance or the home's value. When the property is sold and the loan is paid off, any sale proceeds above the payoff belong to the borrower or the estate. The lender and HUD do not keep the surplus.

Question 33Reverse mortgage regulations and program details

Which entity establishes the HECM program rules, including borrower eligibility and lender participation requirements?

  1. The Federal Housing Administration within HUD Correct answer.
  2. The Federal Reserve Board
  3. The Consumer Financial Protection Bureau
  4. The Securities and Exchange Commission

Explanation

The HECM program is administered by HUD through the Federal Housing Administration, which issues the rules lenders must follow to originate and insure these loans. The CFPB, Federal Reserve, and SEC have other regulatory roles but do not set HECM program requirements. Lenders must comply with FHA requirements to obtain insurance.

Question 34Reverse mortgage regulations and program details

A borrower's HECM becomes due and payable after a triggering event. What is the lender's typical next step if the borrower does not resolve the event?

  1. The lender transfers the loan to HUD for immediate payment of the full balance
  2. The lender converts the loan to a conventional amortizing mortgage
  3. The lender may call the loan due and, after required notices, proceed to foreclosure Correct answer.
  4. The lender immediately forecloses without any notice period

Explanation

When a HECM is due and payable, the lender notifies the borrower and provides an opportunity to cure or to sell the home to satisfy the debt. If the matter is not resolved, the lender may foreclose after complying with required notices. The process is not immediate, and the loan is not converted to a conventional mortgage.

Question 35Reverse mortgage regulations and program details

Which circumstance would most likely cause a HECM to become due and payable because the borrower no longer occupies the home as a principal residence?

  1. The borrower moves to an assisted living facility for a temporary rehabilitation stay of one month
  2. The borrower hosts a family member for the summer
  3. The borrower takes a two-week vacation
  4. The borrower permanently moves to another state and rents out the subject property Correct answer.

Explanation

Borrowers must occupy the home as their principal residence. A permanent move away, including renting out the property while living elsewhere, can make the loan due and payable. Short absences or temporary stays for health reasons generally do not by themselves trigger the due-and-payable provision.

Question 36Reverse mortgage regulations and program details

A HECM borrower has a fixed-rate loan and wants to make a partial prepayment. How are prepayments generally treated under the program?

  1. Prepayments are prohibited until the loan matures
  2. Prepayments are permitted without a penalty and reduce the loan balance Correct answer.
  3. Prepayments trigger automatic recertification of the principal limit
  4. Prepayments are allowed only if the entire balance is paid at once

Explanation

HECM borrowers may prepay all or part of the loan at any time without a prepayment penalty. A partial prepayment reduces the outstanding balance, and the borrower retains access to remaining available funds under the plan. Prepayment is a borrower right, not a restricted event.

Question 37Reverse mortgage regulations and program details

How does a HECM for Purchase differ from a traditional HECM refinance transaction?

  1. The borrower must use the loan to buy a new principal residence and must contribute a required down payment Correct answer.
  2. The borrower may purchase an investment property with no down payment
  3. The loan proceeds may be used to buy a second home for seasonal use
  4. The borrower is exempt from the counseling requirement

Explanation

A HECM for Purchase finances the acquisition of a new principal residence, and the borrower must bring a required down payment from allowable sources. The property must be the borrower's principal residence, so investment and second homes do not qualify. Counseling is still required.

Question 38Reverse mortgage regulations and program details

A borrower is deciding between a fixed-rate and an adjustable-rate HECM. Which statement correctly describes a key structural difference?

  1. Both rate types offer identical payment options and only differ in the initial interest rate
  2. The adjustable-rate HECM can offer a line of credit or monthly payments, while the fixed-rate option is limited in payment choices Correct answer.
  3. The fixed-rate HECM offers a growing line of credit but no monthly payments
  4. The fixed-rate HECM requires the borrower to make monthly interest payments

Explanation

Adjustable-rate HECMs support line-of-credit and monthly payment options, whereas the fixed-rate HECM is generally limited to a single lump-sum disbursement. The rate structure therefore affects which payment plans are available. Borrowers who want flexible draws usually need an adjustable-rate loan.

Question 39Reverse mortgage regulations and program details

What is the purpose of the HECM borrower's annual occupancy certification?

  1. To confirm the borrower continues to use the home as a principal residence Correct answer.
  2. To reset the interest rate on the loan
  3. To determine the borrower's eligibility for a new counseling session
  4. To recalculate the home's appraised value each year

Explanation

Lenders must obtain an annual certification that the borrower still occupies the property as a principal residence. This helps identify whether a due-and-payable event has occurred. The certification does not reappraise the home, reset the rate, or trigger new counseling.

Question 40Reverse mortgage regulations and program details

A lender is reviewing whether a borrower's existing mortgage can be paid off with HECM proceeds. What is the general rule?

  1. Only liens held by the same lender may be paid off
  2. Existing liens are subordinate to the HECM and need not be addressed
  3. Existing liens on the property must be paid off at closing from the HECM proceeds Correct answer.
  4. Existing liens may remain in place as long as the borrower keeps paying them

Explanation

HECM proceeds are used first to satisfy mandatory obligations, which include paying off existing liens on the property so that the HECM can hold the required lien position. The borrower cannot leave prior liens outstanding and still close the loan. Clearing existing debt is a standard part of the transaction.

Question 41Reverse mortgage regulations and program details

Which statement best describes the treatment of a non-borrowing spouse who is under age 62 at the time the HECM closes?

  1. The spouse must refinance the loan into their own name within 30 days
  2. The spouse may remain in the home after the borrower's death only if the loan documents establish an eligible non-borrowing spouse status and conditions are met Correct answer.
  3. The spouse is automatically a co-borrower and must sign the note
  4. The spouse loses all rights to occupy the home immediately upon closing

Explanation

HUD rules allow a non-borrowing spouse to remain in the home after the borrowing spouse's death only where the loan documents properly establish that status and the required conditions, such as continued occupancy and payment of property charges, are satisfied. The spouse is not a co-borrower and does not sign the note. The protections are conditional rather than automatic.

Question 42Reverse mortgage regulations and program details

A HECM borrower fails to pay property taxes, and the lender advances funds to cover them. What is the usual result?

  1. The advance converts the loan to a non-insured status
  2. The advance is deducted from the lender's servicing fee
  3. The advance is forgiven and never added to the balance
  4. The advance is added to the loan balance and the borrower must repay it under the loan terms Correct answer.

Explanation

When a borrower fails to pay property charges, the lender may advance funds to protect its lien and the FHA insurance fund. Those advances, plus related costs, are added to the loan balance and must be repaid by the borrower. Repeated failures can also lead to a due-and-payable event.

Question 43Reverse mortgage regulations and program details

Which of the following is a required element of HECM loan servicing that distinguishes it from many forward mortgages?

  1. Annual credit score re-underwriting of the borrower
  2. Automatic conversion to a fixed-rate loan after five years
  3. Monthly principal and interest payments collected from the borrower
  4. Ongoing monitoring of property charges and occupancy Correct answer.

Explanation

HECM servicers must monitor whether property taxes and insurance are paid and whether the borrower continues to occupy the home. These servicing duties protect the lender and the insurance fund because no monthly payments are required. Credit re-underwriting and automatic rate conversion are not features of HECM servicing.

Question 44Reverse mortgage regulations and program details

A borrower's home is destroyed by a fire and the borrower decides not to rebuild. What is the likely consequence for the HECM?

  1. The loan remains in force indefinitely because the borrower still owns the land
  2. The loan may become due and payable because the property no longer serves as the borrower's principal residence Correct answer.
  3. The lender must forgive the loan balance
  4. The borrower may transfer the loan to a family member without lender approval

Explanation

If the home is destroyed and not rebuilt, it generally can no longer serve as the borrower's principal residence, which can make the loan due and payable. The borrower is expected to maintain the property and keep it insured. Ownership of the land alone does not preserve the loan.

Question 45Reverse mortgage regulations and program details

A borrower is considering a HECM and asks how the loan affects the estate. Which statement is accurate?

  1. The estate must pay a penalty if it chooses to sell the home
  2. The heirs automatically inherit the loan without any obligation
  3. The heirs may sell the home, repay the loan from the proceeds, and keep any remaining equity Correct answer.
  4. The heirs must repay the full loan balance even if it exceeds the home's value

Explanation

Because a HECM is non-recourse, the amount owed is capped at the lesser of the loan balance or the home's value. Heirs may sell the property, use the proceeds to satisfy the loan, and retain any surplus. They are not personally liable for a balance exceeding the home's value.

Question 46Reverse mortgage regulations and program details

Which of the following describes the HUD requirement regarding the borrower's initial disbursement limit at closing on an adjustable-rate HECM?

  1. The initial disbursement is set solely by the appraiser
  2. The initial disbursement must be exactly half of the principal limit
  3. There is no limit, and the borrower may draw the entire principal limit at closing
  4. The initial disbursement is capped, with the remainder available in later years Correct answer.

Explanation

HUD rules limit how much of the principal limit a borrower may draw during the first year of an adjustable-rate HECM, with additional funds becoming available in subsequent years. This limit applies to the borrower's draws after mandatory obligations are satisfied. The cap is a program rule, not a matter of appraiser discretion.

Question 47Reverse mortgage regulations and program details

A borrower refinances an existing HECM into a new HECM. Which requirement is most relevant to whether the transaction may proceed?

  1. The new loan must provide a net tangible benefit to the borrower and satisfy applicable seasoning rules Correct answer.
  2. The new loan must be a fixed-rate loan
  3. The new loan must have a lower principal limit than the old loan
  4. The new loan must be originated by the same lender

Explanation

HUD requires that a HECM-to-HECM refinance produce a net tangible benefit for the borrower and meet any applicable seasoning requirements before it can proceed. The refinance cannot be done solely to generate fees. The lender, rate type, and principal limit comparison are not the governing test.

Question 48Reverse mortgage regulations and program details

A lender is evaluating whether a HECM borrower's failure to pay hazard insurance can lead to loss of FHA insurance protection. Which statement is most accurate?

  1. The lender may force-place insurance and add the cost to the balance, and continued noncompliance can lead to a due-and-payable event Correct answer.
  2. Failure to maintain hazard insurance has no effect on the loan or insurance
  3. HUD automatically assumes the loan upon a lapse in coverage
  4. The lender must cancel the loan immediately upon any lapse in coverage

Explanation

Borrowers must keep the home insured against hazards. If coverage lapses, the lender may force-place insurance and charge the cost to the loan balance. Persistent failure to maintain required insurance is a default that can make the loan due and payable.

Question 49Reverse mortgage regulations and program details

Which statement best explains why the HECM program requires lenders to maintain a minimum capital or net worth standard?

  1. To set the maximum claim amount for each county
  2. To guarantee borrowers a minimum interest rate on their loans
  3. To ensure lenders can absorb losses and continue servicing loans through the life of the program Correct answer.
  4. To determine the borrower's eligibility for a line of credit

Explanation

HUD requires participating lenders to meet capital and net worth standards so they can withstand losses and continue servicing HECMs, which can run for many years. These standards protect borrowers and the insurance fund. They do not set rates, claim amounts, or borrower eligibility.

Question 50Reverse mortgage regulations and program details

A borrower wants to use a HECM line of credit and later add a monthly payment plan. What is generally true about changing payment options?

  1. The borrower may change payment options at any time without any cost or restriction
  2. Payment options are fixed at closing and cannot be changed
  3. Only the lender may change the payment option, and only at maturity
  4. The borrower may change payment options subject to lender and HUD requirements, often with a fee Correct answer.

Explanation

HECM borrowers may generally change payment options during the loan term, but the change is subject to lender and HUD requirements and may involve a fee. The option is not permanently locked at closing. Changes are not made solely at the lender's discretion at maturity.