Download HECM Reverse Mortgage Study Guide: Understanding Home Equity Conversion Mortgages and more Exams Real Estate Management in PDF only on Docsity!
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HOME EQUITY - correct answer ✅HOME VALUE MINUS LIENS ON THE HOME PURPOSE OF A REVERSE MORTGAGE - correct answer ✅GENERATE CASH FORWARD MORTGAGE PURPOSE - correct answer ✅THE ORDINARY MORTGAGE MOST PEOPLE USE TO PURCHASE HOME FORWARD MORTGAGE - correct answer ✅BORROWERS EQUITY INCREASES OVER TIME THE LOAN BALANCES DECREASES AS PAYMENTS ARE MADE TO LENDER REVERSE MORTGAGE - correct answer ✅RISING DEBT FALLING EQUITY TRANSACTIONS HECM BASIC FEATURES - correct answer ✅THE BORROWER RETAINS TITLE TO THE HOME. THE BORROWER IS STILL RESPONSIBLE FOR TAXES INSURANCE AND UPKEEP. THE BORROWER ESTATE MUST PAY OFF THE LOAN UPON THE BORROWERS DEATH. THE AMOUNT OF THE LOAN ADVANCES GENERALLY DEPENDS ON THE VALUE OF THE HOME, AGE OF THE BORROWER AND THE COST OF THE LOAN (LOAN FEES AND INTEREST RATE) The loan balance (amount owed) rises over time Financed Fees - correct answer ✅Fees paid using part of the loan fees
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Reverse Mortgage - correct answer ✅is a loan against home equity providing cash advances to a borrower and requiring no repayment until a future time Reverse mortgage insurance - correct answer ✅permit borrowers to remain in their homes for as long as they choose to protect borrowers with non-recourse loan limit and to protect lenders from the risk that some loan balances may exceed home values single-purpose reverse mortgages - correct answer ✅offered by some state and local government agencies. Each loan can only be used for a single purpose example, home repairs, property taxes. These plans generally have maximum income eligibility requirements but the cost is usually very low or moderate proprietary reverse mortgages - correct answer ✅are developed owned and insured by private companies. More costly than the federally-insured Hecm. They have targeted owners of homes whose high values made the Hecm loan more limiting. called Jumbo reverse mortgages. eligible homeowners - correct answer ✅62and over principal residence at least 6 months of year, at least one owner must be residing in the home at the time of closing own the home existing mortgage must be paid off before or at closing or must be subordinated to the Hecm Hecm must be first mortgage, but can be used to pay off existing liens on the property
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Life estate - correct answer ✅must agree to sign mortgage can get HECM Divides home ownership in two parts trust - correct answer ✅creates the legal entity gives assets to it manages the assets has benefits from the assets property eleigibility - correct answer ✅in good condition meets hud property standard health and safety structural soundness all major systems work Repairs - correct answer ✅some repairs needs are ok if minor 15% of home value can do after closing if major than 15% of home value must do at least some before closing ex: 100000 home needs a new roof and new heating system Estimated cost 10000 Before or after closing? Repairs that exceed % of the home value must be completed closing - correct answer ✅15%, before
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total loan amount - correct answer ✅principal limit, Maximum loan balance at any time throughout the life of the loan Principal limit factor - correct answer ✅percentage of home value that can be borrowed at closing principal limit factor determines - correct answer ✅risks; higher percentage= higher risk for fha the more they lend the more likely the loan balance will be greater than home value fha sets the factors and can change them what determines HECM PRINCIPAL LIMITS - correct answer ✅the value of the home the age of the youngest borrower the cost of the loan(expected interest rate) Maximum claim amount - correct answer ✅maximum home value used in loan calculations maximum claim amount lesser of - correct answer ✅appraised value of the home or fhas national mortgage limit $636, the maximum claim amount multiplied by the principal limit factor equals the principal limit - correct answer ✅200000*.625: $
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2% of the first 200000 of maximum claim amount plus 1% of additional home value but no more than $ Lenders my always charge at least $2500 on lower value homes Lenders may offer to waive or reduce origination fees when loan reaches 98% of the Maximum claim amount - correct answer ✅the lender may assign the loan to HUD and be paid the full loan balance from the FHA mortgage insurance fund Mandatory Obligations - correct answer ✅things that must be paid at the time of closing such as existing liens delinquent federal taxes closing cost repair set-asides property taxes Third party cost - correct answer ✅those paid to someone else besides the lender: appraisal credit report attorney or other settlement fees title search and title insurance required inspections recording fees document preparation courier fees state taxes and stamps counseling fees set asides - correct answer ✅money reserved for a future purpose. amounts will be added to the loan balance only when the funds are disbursed or earned by the servicer Libor - correct answer ✅London Interbank Offered Rate libor background - correct answer ✅The 10-year LIBOR swap rate is used to calculate the Expected Interest Rate on LIBOR-indexed Home Equity Conversion Mortgages. The Board obtained its 10-Year LIBOR swap rate from the
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Intercontinental Exchange (ICE) Benchmark Administration and calculated a weekly average using the ICE 10-Year swap rate available at: https://www.theice.com/iba The Servicing Fee Set - correct answer ✅The Servicing Fee Set-Aside is used for the payment of the monthly servicing fee and will increase each month at a rate equal to one-twelfth of the sum of the mortgage interest rate (Note Rate), plus the annual mortgage insurance premium rate (currently 0.0125 or 1.25%), from the date the loan is funded. The Servicing Fee Set-Aside amount is determined at origination and its balance is adjusted monthly by applying the formula below The Servicing Fee Set formula - correct answer ✅Formula S{Sub k} = FEE x [(1+i) {Sup(m+1)} - (1+i)] / [i x (1+i){Sup m}], Where, S{Sub k} is the set aside of principal limit required in the kth month of the loan, where k at time of loan origination is equal to 1, for future payment of flat monthly loan servicing fees from the borrower's account, and this amount is constant for the entire month, i is the monthly compounding rate calculated as one twelfth of the sum of the mortgage interest rate (Note Rate) and the annual MIP rate (currently 0.0125 or 1.25%), m is the number of remaining months that the servicing fee could be collected, i.e., the remaining term on a tenure mortgage in the kth month of the loan: m = 12 x (100 - Borrower's Age) - k + 1, Borrower's Age is the borrower's age used to calculate the Principal Limit, and FEE is the monthly loan servicing fee charged to the borrower's account. Where loan servicing charges are included in the mortgage interest rate (Note Rate) and are paid as a percentage of the outstanding loan balance, then FEE is zero, and the calculation of S{Sub k} results in a zero set aside amount for all
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tenure - correct answer ✅TENURE: Borrower receives monthly payments from the lender for as long as the home is occupied as the principal residence term - correct answer ✅TERM: Borrower receives monthly payments from the lender for a period of months selected by the borrower. line of credit - correct answer ✅LINE OF CREDIT: Borrowers can draw up to a pre- established limit 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 - correct answer ✅MODIFIED TERM: Borrower may combine a line of credit with monthly payments for fixed number of months (term option). modified tenure - correct answer ✅MODIFIED TENURE: Borrower may combine a line of credit with monthly payments for as long as one borrower remains in the home (tenure option $20 fee - correct answer ✅Borrowers may also change between the above payment options during the loan term as long as there are still unused loan proceeds remaining. The maximum charge for each change is $ Lump sum - correct answer ✅SINGLE DISBURSEMENT LUMP SUM - (new 9/30/13)
- Borrower takes all available funds at closing, subject to first year limitations, and cannot take any additional funds after that. Primarily designed for fixed rate HECM products. Borrowers who choose this option cannot switch to another plan later
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REPAYMENT - correct answer ✅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. A HECM is a "non-recourse - correct answer ✅loan, which means that a borrower can never owe more than the value of the property at the time the loan is repaid a reverse mortgage is different from a home equity loan because - correct answer ✅you do not have to make monthly repayments on a reverse mortgage If the principal limit is 60% of the home value at closing, and the borrower takes a lump sum draw, the remaining 40% will be used to: Incorrect Answer Source Material to Reference for more Study - correct answer ✅HUD HECM Counseling Protocol - 5.D.2.c; The 60% principal limit includes the compensation for the lender, the closing costs and future mortgage insurance. The remaining equity in the property is reserved to cover future interest and mortgage insurance that will accrue on the loan.
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because "third party" means someone other than the lender. The mortgage insurance on HECM loans is not "private" mortgage insurance, it is FHA (government) mortgage insurance (MIP and PMI are not the same thing.) agency charges a fee - correct answer ✅If a client's income is below 200% of the Federal Poverty Level, the agency cannot charge an upfront fee but can charge a fee to be financed at closing. The agency's fee structure must be based on ability to pay and can be on a sliding scale
