During a new-license application, a quality-control reviewer identifies an issue involving ATR/QM repayment-ability rules. Which response is most compliant?
Correct Answer
A) Verify ability to repay using reliable third-party records
Why this is correct: The Ability-to-Repay/Qualified Mortgage (ATR/QM) rule under TILA requires lenders to make a reasonable, good-faith determination of a consumer's ability to repay the loan before extending credit. This must be based on verified and reliable information, typically from third-party records like tax returns, W-2s, and bank statements, not just the consumer's unverified statements. Why the other choices are wrong: Using an internal exception instead of the required federal disclosure or timing rule is wrong because ATR is a fundamental federal underwriting requirement with no internal exceptions. Applying the correct general concept to the wrong asset documentation stage rather than the ATR QM Rule rule is wrong because it misapplies a procedural step (like documenting assets) to the core requirement of verifying repayment ability. Relying on oral agreement when the rule requires documented compliance is wrong because ATR verification must be documented in the loan file with reliable records. Exam tip: ATR is about verifying the borrower's ability to repay. The gold standard is using reliable, third-party documentation to verify income, assets, debts, and credit history.
Why This Is the Correct Answer
The correct response is "Verify ability to repay using reliable third-party records" because ATR/QM rules require verified repayment ability and restrict risky QM features.
Why the Other Options Are Wrong
Option B: 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 C: Apply the correct general concept to the wrong asset documentation stage rather than the ATR QM Rule rule.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: 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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