During intake, the file has borrower statements but no verified ability-to-repay analysis. What is the best compliant response?
Correct Answer
A) 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) requires a creditor to make a reasonable, good faith determination of a borrower's repayment ability before loan consummation, using verified and reliable third-party records. Borrower statements alone are insufficient; income and obligations must be documented. Why the other choices are wrong: 'Ignore a recent employment change because the credit score meets guidelines' is wrong because ATR requires an assessment of income stability, and a credit score does not substitute for verified income. 'Use bonus income without verifying a history or likelihood of continuance' is wrong because bonus income typically requires a two-year history and reasonable expectation of continuance to be considered stable. 'Treat temporary overtime as stable income without support in the file' is wrong because temporary or variable income cannot be treated as stable without specific verification and likely cannot be relied upon for ATR. Exam tip: ATR is a mandatory pre-closing step. 'Verify' is the key action—rely on documents like W-2s, pay stubs, and tax returns, not just borrower statements.
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 B: 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 C: 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 D: 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.
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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