A branch keeps one reverse mortgage checklist and uses it for every file regardless of how the borrower takes the money. An auditor questions the practice. On what basis?

Correct Answer

B) Use the correct open-end or closed-end framework

Why this is correct: The most defensible response is to "Use the correct open-end or closed-end framework." Reverse mortgages are complex specialty products. A Home Equity Conversion Mortgage (HECM) is a closed-end loan, while a proprietary reverse mortgage could be structured as open-end. The legal and disclosure requirements (under TILA, for example) differ drastically between open-end (like a line of credit) and closed-end (a fixed amount) credit plans. Applying the correct framework is fundamental to compliance. Why the other choices are wrong: The choice to "Apply a different loan-program rule without checking the file facts" is wrong because the specific type of reverse mortgage (HECM vs. proprietary) determines the applicable rules. The choice to "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because reverse mortgages have strict age, occupancy, and property type requirements that cannot be waived. The choice to "Apply the correct general concept to the wrong credit underwriting stage rather than the Reverse Mortgage Requirements rule" is wrong because it misapplies a concept, failing to address the specific product rules for reverse mortgages. Exam tip: For any specialty loan, first identify its basic structure: Is it open-end (revolving) or closed-end (installment)? This dictates the regulatory roadmap.