A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
Correct Answer
C) Consider payment obligations, debts, income, and credit history
Why this is correct: The ATR rule under 12 CFR 1026.43(c)(2) requires a creditor to consider eight specific underwriting factors. These include the consumer's current and reasonably expected income, assets, employment, monthly payment on the covered loan, monthly payments on simultaneous loans, monthly payments for mortgage-related obligations, current debt obligations, and credit history. The correct option directly reflects this comprehensive, multi-factor analysis. Why the other choices are wrong: "Calculate DTI before resolving known obligations shown outside the credit report" is wrong because it reverses the proper order; known obligations (e.g., child support, separate loan payments) must be included in the debt calculation, and DTI cannot be accurately calculated until all obligations are resolved. "Use the lowest middle score from a different borrower to improve pricing" is wrong because it violates fair lending and credit policy by using an unrelated consumer's credit score, which is deceptive and inaccurate. "Clear credit conditions without documenting the explanation for derogatory items" is wrong because ATR and general underwriting standards require documenting the analysis of credit history, including any explanations for derogatory items. Exam tip: When an ATR question involves underwriting, the correct answer will encompass a broad evaluation of income, debts, and credit—not a single, narrow step.
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 A: 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 B: 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.
Option D: Clear credit conditions without documenting the explanation for derogatory items.
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.
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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