Mortgage Agent Course (Canada – FSRA/CMRAO)

Correct: According to FHA appraisal standards, Gross Living Area (GLA) must only include finished, contiguous, and functional living space. Communal storage areas, even if assigned to a specific unit, are considered non-contiguous amenities or separate legal interests. They must be valued as such in the ‘Amenities’ or ‘Other’ section of the appraisal report rather than being included in the GLA, and the appraiser must verify the legal right to the space via the Master Deed or HOA documents to ensure the value is supported and transferable.

Incorrect: Including storage square footage in the GLA is incorrect because it violates the requirement for living space to be contiguous and finished for residential use. Applying a standard flat-rate adjustment is not a recognized appraisal methodology and fails to account for market-specific value or legal rights. Excluding the storage space entirely is also incorrect because if the space is a legally deeded or assigned amenity that adds value to the property, it should be reflected in the total market value to ensure an accurate Principal Limit calculation for the borrower.

Takeaway: Communal storage must be treated as an amenity or separate interest and excluded from the Gross Living Area (GLA) in FHA-compliant appraisals.

Correct: In the context of HECM and FHA appraisals, the appraiser is required to identify how parking is conveyed—whether it is a deeded interest (real property), an assigned space (right to use), or a general common element. Because the market value can vary significantly based on these rights, the appraiser must use comparable sales with similar parking arrangements or make appropriate market-based adjustments to ensure the collateral value is accurately represented.

Incorrect: Treating all parking as a standard amenity is incorrect because deeded spaces often carry higher market value than unassigned common areas, and ignoring this would lead to an inaccurate appraisal. Parking garages are not appraised as commercial entities for residential HECM loans. While FHA has general accessibility guidelines, there is no specific requirement for a numbered spot within fifty feet of the entrance for a property to be eligible for a reverse mortgage.

Takeaway: Accurate HECM appraisals require the appraiser to distinguish between deeded, assigned, and common parking rights and to use comparable sales that reflect the same legal interests.

Correct: In cases where a potential conflict of interest is identified and there is a question regarding the legal status of communal amenities, an independent appraisal review (desk or field) is the standard protocol. This ensures that the valuation of the parking space—whether it is deeded, assigned, or part of the common elements—is accurately reflected and that the appraiser’s familial connection did not result in an inflated value or a failure to account for restrictive HOA covenants.

Incorrect: Relying on a borrower’s affidavit is insufficient for collateral valuation and does not address the appraiser’s potential conflict of interest or the technical legal status of the parking. Deducting the value arbitrarily without a professional review ignores the need for an accurate market value and fails to address the underlying compliance issue. Allowing the original appraiser to provide a letter of explanation is inappropriate when a conflict of interest is suspected, as it does not provide the necessary independence or objective oversight required to mitigate the risk.

Takeaway: When a conflict of interest or valuation error regarding communal property rights is suspected, an independent appraisal review is the standard procedure to ensure collateral integrity.

Correct: Under HUD guidelines for the HECM program, the Maximum Claim Amount (MCA) is established at the time of loan closing and cannot be increased through a loan modification. If a borrower wishes to access more equity because their home value has increased, they must typically undergo a full refinance into a new HECM loan. This process requires a new appraisal, new mortgage insurance premiums, and a new loan agreement, rather than a simple modification of the existing note.

Incorrect: The other options represent common misconceptions or non-existent regulations. There is no twelve-month waiting period for modifying payment plans if funds are available within the existing principal limit. There is no statutory prohibition against using proceeds for repairs; in fact, reverse mortgage proceeds can be used for any purpose. While counseling is required for the initial loan or a refinance, a simple change in payment plan (e.g., moving from line of credit to tenure) does not require a new counseling session or approval from the original counselor.

Takeaway: To access additional equity resulting from property appreciation in a HECM, a borrower must refinance the loan because the Maximum Claim Amount is fixed at the time of the original closing.

Correct: According to HUD’s Financial Assessment guidelines for HECMs, lenders must evaluate the sustainability of income. If a borrower is receiving income that is scheduled to decrease or terminate (such as a bridge pension or temporary supplement), the lender must document the terms of the change and verify that the borrower will still meet the residual income requirements after the reduction occurs, potentially by factoring in other income sources like Social Security that may begin at that time.

Incorrect: Using only the current income level is incorrect because it ignores the high risk of default once the income drops below the required residual threshold. Excluding the temporary income entirely is unnecessarily restrictive and does not align with HUD’s goal of accurately reflecting the borrower’s financial capacity. Mandating a LESA is a tool used when a borrower fails the financial assessment or has a poor credit history, but a future change in income does not automatically trigger a LESA if the borrower still meets the residual income test after the change.

Takeaway: Lenders must verify and document that a borrower’s residual income remains sufficient even after any scheduled reductions in pension or benefit payments occur during the loan term.

Correct: According to HUD and FHA appraisal guidelines for HECM loans, appraisers must account for all mandatory fees associated with a property, including those for communal leisure areas or Homeowners Associations (HOAs). These fees are critical for the Financial Assessment of the borrower to ensure they can maintain the property. Furthermore, the appraiser must use comparable sales that are subject to similar mandatory fees and amenities to provide an accurate market value, as these features significantly influence marketability and value.

Incorrect: Excluding the fees and value (option b) is incorrect because mandatory assessments are a legal obligation tied to the property and must be factored into the borrower’s capacity to pay. Obtaining a subordination agreement (option c) is not a standard appraisal or underwriting requirement for HECM loans and does not address the valuation issue. Applying an arbitrary downward adjustment based on life expectancy (option d) is not a recognized appraisal methodology and violates the requirement to base adjustments on market-derived data from comparable sales.

Takeaway: Appraisals for reverse mortgages must accurately reflect mandatory communal fees in the borrower’s carrying costs and use comparable sales with similar amenities to ensure compliance with HUD valuation standards.

Correct: For HECM and FHA-insured loans, any shared facility essential to the property’s value or use, such as parking, must be protected by a recorded easement or a covenant that runs with the land. This ensures that the right to use the facility is permanent and transferable, which is vital for the property’s marketability and the security of the reverse mortgage collateral.

Incorrect: Applying an arbitrary discount does not address the underlying requirement for legal access and marketability. A signed affidavit is insufficient because it is a personal agreement that does not legally bind future owners of the adjacent parcel. Classifying parking as a temporary amenity is incorrect because HECM appraisals require that essential features be permanent and legally secured to be included in the property’s valuation.

Takeaway: Properties with shared facilities must have recorded, perpetual legal agreements to ensure the collateral remains marketable and compliant with FHA standards.

Correct: Under HUD guidelines for HECM servicing, when hazard insurance proceeds are received for property damage, the servicer must ensure the property is restored to its original condition. The funds are typically held in a restricted escrow account. The servicer is responsible for overseeing the restoration process, which includes releasing funds in draws or installments only after verifying that specific stages of the repair work have been completed through professional inspections.

Incorrect: Applying the funds to the principal limit is incorrect because the primary objective of hazard insurance is to restore the collateral value of the property, not to pay down the debt. Releasing the full amount to the borrower without oversight is a violation of the servicer’s fiduciary duty to protect the FHA’s interest in the property, as it provides no guarantee that repairs will be completed. Transferring funds to HUD is not the standard procedure for insurance claims; the HECM assignment process is triggered by the loan balance reaching the maximum claim amount, not by property damage or insurance payouts.

Takeaway: Servicers must manage insurance loss drafts through restricted accounts and staged disbursements to ensure the property collateral is fully restored according to FHA requirements.