A mortgage file is paused during a policy refresh meeting because of TILA Qualified Mortgage. Which answer should explain the required action to the team?
Correct Answer
D) Avoid QM features such as negative amortization or interest-only terms
Why this is correct: TILA's Ability-to-Repay/Qualified Mortgage (ATR/QM) rules require lenders to make a reasonable, good faith determination of a consumer's ability to repay. A Qualified Mortgage must generally avoid certain risky features to obtain certain legal protections. Therefore, the compliant action is to structure the loan to avoid prohibited QM features like negative amortization or interest-only terms. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because QM standards are federal rules; internal policies cannot create exceptions to the prohibited feature list. "Resolve the TILA Qualified Mortgage issue with the fee tolerance exception that does not fit the facts" is wrong because fee tolerances relate to points and fees calculations, not to the structural features of the loan itself. "Rely on oral agreement when the rule requires documented compliance" is wrong because ATR must be based on verified, documented information, not oral agreements. Exam tip: For QM, remember the list of prohibited features: primarily negative amortization, interest-only payments, balloon payments (with exceptions), and terms exceeding 30 years.
Why This Is the Correct Answer
The correct response is "Avoid QM features such as negative amortization or interest-only terms" because ATR/QM rules require verified repayment ability and restrict risky QM features.
Why the Other Options Are Wrong
Option A: Use an internal exception instead of the required federal disclosure or timing rule.
Use an internal exception instead of the required federal disclosure or timing rule. is not correct because it does not apply the rule tested by this file scenario.
Option B: Resolve the TILA Qualified Mortgage issue with the fee tolerance exception that does not fit the facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option C: Rely on oral agreement when the rule requires documented compliance.
Rely on oral agreement when the rule requires documented compliance. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
ATR/QM repayment-ability rules: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to ATR/QM repayment-ability rules; do not choose an exception or shortcut that skips the required rule.
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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