Loan Officer Practice Exam

A home equity conversion mortgage (HECM) and an adjustable-rate mortgage (ARM) both fall under the category of nontraditional loans because they offer features that deviate from standard loan structures. Nontraditional loans typically include characteristics such as alternative repayment plans, atypical loan structures, or loans designed for specific purposes, like HECMs, which are specifically aimed at seniors to convert home equity into cash without requiring monthly repayments. Conventional loans, on the other hand, adhere to more traditional mortgage features, such as fixed-rate terms or standard adjustable rates that comply with Fannie Mae or Freddie Mac guidelines. Government agency loans are loans backed by government entities, such as FHA or VA loans, which provide specific benefits and protections to certain borrowers. Nonconforming loans are those that do not meet the criteria set by government-sponsored enterprises for purchase but typically do not cover specialized loan cases like HECMs. Understanding these distinctions helps clarify why HECMs and ARMs are classified as nontraditional loans, as they represent innovative solutions that suit specific borrowing needs and financial situations.