An MLO is reviewing procedures for a case where the file has borrower statements but no verified ability-to-repay analysis. What is the proper handling?
Correct Answer
A) Verify repayment ability before consummation using reliable records
Why this is correct: The Ability-to-Repay (ATR) rule under 12 CFR 1026.43(c)(1) requires a creditor to verify a consumer's repayment ability using reliable third-party records before loan consummation. A file containing only borrower statements lacks the necessary verification. The proper handling is to obtain and document verified income and employment data from sources like W-2s, pay stubs, or tax returns to complete the ATR analysis. Why the other choices are wrong: "Exclude a verified loss from qualifying income because the borrower prefers the higher figure" is wrong because ATR requires using verified, accurate figures; omitting a known loss misrepresents repayment ability. "Treat the Ability to repay general requirement review as complete because the file contains a related licensing note" is wrong because a note does not substitute for the required verified analysis. "Average income from an undocumented second job" is wrong because income from a second job must be verified with documentation, not estimated. Exam tip: ATR is a pre-consummation requirement. If verification is missing, you must get it before closing—never assume or estimate.
Why This Is the Correct Answer
The correct response is "Verify repayment ability before consummation using reliable records". The ATR rule requires a pre-consummation determination based on reliable information, not unsupported statements or collateral alone.
Why the Other Options Are Wrong
Option B: Exclude a verified loss from qualifying income because the borrower prefers the higher figure.
This choice is not the best answer because it applies the wrong file step for income analysis and documentation; the governing rule is tested by the correct option.
Option C: Treat the Ability to repay general requirement review as complete because the file contains a related licensing note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: Average income from an undocumented second job.
This choice is not the best answer because it applies the wrong file step for income analysis and documentation; the governing rule is tested by the correct option.
Memory Technique
ATR questions usually reward verification before consummation.
Exam Tip
For income analysis and documentation questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -A borrower statement is not a substitute for a good-faith ATR determination.
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam