An applicant has verified monthly income of $5,000 and monthly obligations of $4,700 after the proposed mortgage payment. The applicant expects an undocumented raise next year. What should the MLO do?
Correct Answer
A) Evaluate repayment ability using verified information rather than the expected raise
Why this is correct: The Ability-to-Repay rule requires underwriting based on verified, documented information at the time of the decision. Future income that is not yet received and cannot be verified (like an undocumented expected raise) cannot be used to qualify the borrower. The MLO must assess repayment ability using the current verified income of $5,000 and obligations of $4,700. Why the other choices are wrong: "Approve because the property value is sufficient collateral" is wrong because collateral value does not substitute for repayment ability analysis. "Exclude current debts if the applicant promises to pay them off" is wrong because current debts must be considered unless there is verifiable evidence they will be paid off (e.g., verified savings). "Use the expected raise because the applicant stated it in writing" is wrong because a written statement alone does not constitute verification; the income must be reasonably expected to continue and be documented. Exam tip: For ATR, "verified" means documented proof. Unverified future expectations cannot be used to qualify the borrower.
Why This Is the Correct Answer
Why this is correct: The Ability-to-Repay rule requires underwriting based on verified, documented information at the time of the decision. Future income that is not yet received and cannot be verified (like an undocumented expected raise) cannot be used to qualify the borrower. The MLO must assess repayment ability using the current verified income of $5,000 and obligations of $4,700. Why the other choices are wrong: "Approve because the property value is sufficient collateral" is wrong because collateral value does not substitute for repayment ability analysis. "Exclude current debts if the applicant promises to pay them off" is wrong because current debts must be considered unless there is verifiable evidence they will be paid off (e.g., verified savings). "Use the expected raise because the applicant stated it in writing" is wrong because a written statement alone does not constitute verification; the income must be reasonably expected to continue and be documented. Exam tip: For ATR, "verified" means documented proof. Unverified future expectations cannot be used to qualify the borrower.
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