In a pricing desk question, the branch manager sees facts tied to Underwriting Standards. What should the file reflect?
Correct Answer
D) Use credit-report information for a permissible purpose
Why this is correct: The Fair Credit Reporting Act (FCRA) mandates that a creditor may only access and use a consumer's credit report for a "permissible purpose," such as evaluating an application for credit. "Use credit-report information for a permissible purpose" is the fundamental legal requirement that must be reflected in the file. Why the other choices are wrong: "Use the lowest middle score from a different borrower to improve pricing" is fraud and a violation of underwriting standards, as you must use the applicable score for the actual borrower. "Clear credit conditions without documenting the explanation for derogatory items" violates sound underwriting, which requires documentation for all decision-making. "Exclude a known monthly liability because it was omitted from the initial application" is prohibited; known liabilities must be included in the debt-to-income calculation regardless of when they are discovered. Exam tip: In underwriting, you must use accurate, verified data for the actual borrower. 'Permissible purpose' is the legal gatekeeper for credit reports.
Why This Is the Correct Answer
The correct response is "Use credit-report information for a permissible purpose" because Credit evaluation uses verified credit, debts, history, and repayment ability.
Why the Other Options Are Wrong
Option A: Use the lowest middle score from a different borrower to improve pricing.
This choice is not the best answer because it applies the wrong file step for credit evaluation; the governing rule is tested by the correct option.
Option B: Clear credit conditions without documenting the explanation for derogatory items.
This choice is a tempting shortcut, but it conflicts with credit evaluation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option C: Exclude a known monthly liability because it was omitted from the initial application.
This choice is a tempting shortcut, but it conflicts with credit evaluation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
credit evaluation: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For credit evaluation 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?
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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?
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