A compliance review finds that the file has borrower statements but no verified ability-to-repay analysis. What should the MLO do next?
Correct Answer
B) 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) mandates a creditor make a reasonable, good faith determination of a consumer's repayment ability before consummation, based on verified and reliable third-party records. Borrower statements alone are insufficient. The MLO must obtain and use verified income, employment, and other financial data from documents like pay stubs, tax returns, or bank statements to complete the ATR analysis. Why the other choices are wrong: "Use gross deposits as income without resolving source and stability" is wrong because ATR requires verifying the source, amount, and stability of income, not just accepting deposits. "Ignore a recent employment change because the credit score meets guidelines" is wrong because ATR requires analyzing current and reasonably expected income, and a recent job change impacts stability. "Use bonus income without verifying a history or likelihood of continuance" is wrong because bonus income typically requires a two-year history and likelihood of continuance to be considered reliable. Exam tip: For ATR questions, remember the core rule: verify, verify, verify. Unverified borrower statements never satisfy the requirement.
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 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 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.
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
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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