In a mortgage origination file, the file has borrower statements but no verified ability-to-repay analysis. Which action should be taken?
Correct Answer
D) Verify repayment ability before consummation using reliable records
Why this is correct: The Ability-to-Repay (ATR) rule under 12 CFR 1026.43(c)(1) is a core consumer protection. It requires a creditor to make a reasonable, good-faith determination of a borrower's ability to repay the loan before consummation. This determination must be based on verified, reliable third-party records, not on unverified borrower statements or assumptions. The correct action, "Verify repayment ability before consummation using reliable records," directly fulfills this legal mandate. Why the other choices are wrong: "Average income from an undocumented second job" is wrong because ATR requires verification; averaging unverified income does not meet the standard. "Resolve the Ability to repay general requirement issue with the fee tolerance exception that does not fit the facts" is wrong because fee tolerance exceptions are unrelated to the fundamental ATR verification requirement. "Ignore a recent employment change because the credit score meets guidelines" is wrong because ATR analysis must consider current, verified income and employment; a credit score alone is insufficient. Exam tip: Remember the ATR rule's key verbs: "verify" and "before consummation." Unverified statements or strong collateral alone never satisfy ATR.
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: 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 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 C: 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
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
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A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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