A branch manager asks about a loan file because the file has borrower statements but no verified ability-to-repay analysis. What should happen?
Correct Answer
A) Verify repayment ability before consummation using reliable records
Why this is correct: Per 12 CFR 1026.43(c)(1) (the ATR rule), a creditor must base its repayment ability determination on verified, reliable financial records obtained before consummation. Statements from the borrower alone do not meet this standard. Why the other choices are wrong: 'Average income from an undocumented second job' is wrong because income cannot be averaged from a source that has not been verified to exist; the job itself must be documented. 'Use gross deposits as income without resolving source and stability' is wrong because bank deposits are not necessarily income; they could be gifts or loans, and their source and regularity must be verified. 'Ignore a recent employment change because the credit score meets guidelines' is wrong because a credit score reflects credit history, not current income stability; a recent job change may impact the ability to repay and must be considered. Exam tip: Think 'V-8': Verify income from 8 key documents (e.g., pay stubs, tax returns, W-2s) before closing. No documents, no loan.
Why This Is the Correct Answer
The correct response is "Verify repayment ability before consummation using reliable records" because Lines 207-214; 12 CFR 1026.43(c)(1).
Why the Other Options Are Wrong
Option B: 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.
Option C: Use gross deposits as income without resolving source and stability.
This choice is a tempting shortcut, but it conflicts with income analysis and documentation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option D: Ignore a recent employment change because the credit score meets guidelines.
This choice is a tempting shortcut, but it conflicts with income analysis and documentation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
income analysis and documentation: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For income analysis and documentation 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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