A lender tells an 81-year-old applicant that eligibility for an FHA-insured HECM is conditioned on buying an annuity from its sales partner with the loan proceeds. Is that condition permitted?
Correct Answer
B) No; an annuity purchase cannot be required as a condition of HECM insurance eligibility
B. The lender cannot impose the annuity purchase as a condition of obtaining the HECM. The condition links access to HECM insurance to purchase of a separate investment product. HUD’s March 2026 counseling handbook identifies the prohibition in 12 U.S.C. 1715z-20(o). Requiring purchase through a sales partner does not turn the condition into a voluntary use of proceeds. Scope and exceptions: The statutory exception concerns customary mortgage-related items such as title, hazard and flood insurance; it does not cover the investment annuity described here. Voluntary investment choices must be distinguished from lender-imposed eligibility conditions. Source: Handbook 7610.1 (03/2026), HECM counseling, II.B.3 Objectivity, with No Conflicts of Interest; PDF page 89 — https://www.hud.gov/sites/default/files/hudclips/documents/76101HSGHBK.pdf
Why This Is the Correct Answer
B. The lender cannot impose the annuity purchase as a condition of obtaining the HECM. The condition links access to HECM insurance to purchase of a separate investment product. HUD’s March 2026 counseling handbook identifies the prohibition in 12 U.S.C. 1715z-20(o). Requiring purchase through a sales partner does not turn the condition into a voluntary use of proceeds. Scope and exceptions: The statutory exception concerns customary mortgage-related items such as title, hazard and flood insurance; it does not cover the investment annuity described here. Voluntary investment choices must be distinguished from lender-imposed eligibility conditions.
Why the Other Options Are Wrong
Option A: Yes; a signed acknowledgment waives the restriction
An acknowledgment records consent; it does not remove the prohibited condition.
Option C: No, but only if the annuity commission exceeds 5%
The described prohibition is not limited to commissions exceeding 5%.
Option D: Yes; the borrower can use HECM proceeds for investments
A voluntary use of proceeds is different from a lender-imposed eligibility condition.
Exam Tip
Borrower choice and required cross-selling are different questions.
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