For ATR compliance purposes, how must a lender verify a borrower's ability to repay a balloon mortgage?
Correct Answer
C) Based on the fully amortizing payment over the loan term
Under the ATR rule (12 CFR 1026.43), lenders must verify the borrower's ability to repay based on the fully amortizing payment calculated over the loan term, not just the lower periodic payments. This ensures borrowers can afford payments as if the loan were fully amortizing, providing greater consumer protection.
Why This Is the Correct Answer
Under the ATR rule (12 CFR 1026.43), lenders must verify the borrower's ability to repay based on the fully amortizing payment calculated over the loan term, not just the lower periodic payments. This ensures borrowers can afford payments as if the loan were fully amortizing, providing greater consumer protection.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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Previous Question
A borrower submits an application for a property they describe as '123 Main Street, Anytown, USA' but doesn't provide a state or ZIP code. They claim the address is sufficient since it's the only Main Street in the small town. Is this application complete under TRID?
Next Question
On the URLA Form 1003, Section I asks about the borrower's intended occupancy. A borrower indicates they will use the property as a primary residence but mentions they travel extensively for work and will only be home 3-4 months per year. What additional documentation should the MLO request?