A quality-control reviewer flags a case because the file has borrower statements but no verified ability-to-repay analysis. What correction is appropriate?
Correct Answer
B) Verify repayment ability before consummation using reliable records
Why this is correct: Under the Ability-to-Repay (ATR) rule, 12 CFR 1026.43(c)(1), a creditor must make a reasonable, good faith determination of repayment ability using verified, reliable records before consummation. A file flagged for having only borrower statements lacks this verification. The appropriate correction is to obtain documented proof of income, such as pay stubs, tax returns, or bank statements, and complete the verified ATR analysis. Why the other choices are wrong: "Use bonus income without verifying a history or likelihood of continuance" is wrong because bonus income generally requires a two-year history and likelihood of continuance to be considered reliable for ATR. "Treat temporary overtime as stable income without support in the file" is wrong because overtime income often requires a two-year history and must be likely to continue; treating it as stable without support violates the rule. "Exclude a verified loss from qualifying income because the borrower prefers the higher figure" is wrong because ATR requires using accurate, verified financial data; excluding a known loss is deceptive. Exam tip: In quality control, a missing ATR verification is a critical defect. The correction is always to obtain the verified documentation, not to use unverified data.
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 A: 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.
Option C: Treat temporary overtime as stable income without support in the file.
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: 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.
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.
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