A borrower-facing employee is unsure what to do when a processor wants to omit known monthly obligations from underwriting. What is the correct response?
Correct Answer
A) Consider payment obligations, debts, income, and credit history
Why this is correct: The correct action is governed by the Ability-to-Repay (ATR) rule, which mandates a complete underwriting analysis. As per 12 CFR 1026.43(c)(2), this analysis must include the consumer's current obligations, current income, and credit history. Therefore, the proper response is to "Consider payment obligations, debts, income, and credit history" as a complete set of factors. Why the other choices are wrong: "Ignore a recent inquiry because the borrower says no new account was opened" is wrong because recent credit inquiries must be reviewed and explained as part of the credit history analysis; the borrower's statement alone is insufficient. "Calculate DTI before resolving known obligations shown outside the credit report" is wrong because it puts the cart before the horse; you cannot accurately calculate the Debt-to-Income ratio until all known obligations are identified and included. "Use the lowest middle score from a different borrower to improve pricing" is wrong because it is fraudulent to use another person's credit score, and it does not address the core issue of including known obligations. Exam tip: The ATR rule requires using the *consumer's* actual financial data. Using data from a different person or ignoring known data points are both serious violations.
Why This Is the Correct Answer
The correct response is "Consider payment obligations, debts, income, and credit history" because Lines 207-214; 12 CFR 1026.43(c)(2).
Why the Other Options Are Wrong
Option B: Ignore a recent inquiry because the borrower says no new account was opened.
This choice is a tempting shortcut, but it conflicts with credit evaluation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option C: Calculate DTI before resolving known obligations shown outside the credit report.
This choice is not the best answer because it applies the wrong file step for credit evaluation; the governing rule is tested by the correct option.
Option D: Use the lowest middle score from a different borrower to improve pricing.
This choice is not the best answer because it applies the wrong file step for credit evaluation; the governing rule is tested by the correct option.
Memory Technique
credit evaluation: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For credit evaluation questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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