A borrower-facing employee is unsure what to do when the file has borrower statements but no verified ability-to-repay analysis. What is the correct response?
Correct Answer
C) Verify repayment ability before consummation using reliable records
Why this is correct: The fundamental requirement of the Ability-to-Repay (ATR) rule under 12 CFR 1026.43(c)(1) is to verify the borrower's financial information through reliable documentation (like pay stubs or tax returns) before loan consummation. Relying solely on unverified statements is non-compliant. Why the other choices are wrong: 'Use gross deposits as income without resolving source and stability' is wrong because deposits are not verified income; they could be from non-recurring sources or loans, failing the reliability test. 'Resolve the Ability to repay general requirement issue with the fee tolerance exception that does not fit the facts' is wrong because it conflates two separate rules (ATR and fee tolerances); fee exceptions do not address the lack of income verification. 'Use bonus income without verifying a history or likelihood of continuance' is wrong because bonus income typically requires a two-year history and expectation of continuance to be considered; using it without verification violates the reliable records standard. Exam tip: When you see 'borrower statements but no verified analysis,' the only correct step is to obtain and verify documentation. No shortcuts.
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 A: 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 B: Resolve the Ability to repay general requirement 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 D: Use bonus income without verifying a history or likelihood of continuance.
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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