A mortgage file is paused during a secondary-market screen because of Credit Reports and Scoring. Which answer should select the answer that fits the governing requirement?
Correct Answer
A) Use credit-report information for a permissible purpose
Why this is correct: The governing concept is the Fair Credit Reporting Act (FCRA), which mandates that a consumer report may only be accessed and used for a "permissible purpose." The question's scenario involves a file paused during a secondary-market screen due to credit reports, indicating a compliance checkpoint. The correct action is to ensure any use of the credit information is for a permissible purpose, such as evaluating a credit application, which aligns with standard underwriting and secondary-market due diligence. Why the other choices are wrong: "Clear credit conditions without documenting the explanation for derogatory items" is wrong because underwriting standards and investor guidelines typically require documentation explaining derogatory credit items to support the credit decision. "Exclude a known monthly liability because it was omitted from the initial application" is wrong because Regulation B (ECOA) and underwriting rules require using all verified debts in the repayment analysis; omitting known liabilities would misrepresent the borrower's ability to repay. "Use an outdated credit report after new debt is disclosed" is wrong because Regulation B and Fannie Mae/Freddie Mac guidelines generally require using the most recent credit information available; using an outdated report after new debt is known would be an inaccurate basis for the credit decision. Exam tip: Remember, 'permissible purpose' is the FCRA's core rule for accessing and using any credit report. If a question involves credit reports, the compliant answer usually centers on proper authorization and legitimate use.
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 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.
Option D: Use an outdated credit report after new debt is disclosed.
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.
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?
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?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
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?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
In a closing-readiness check, a processor sees facts tied to Mortgage Insurance Types. What should the file reflect?
Next Question
Before a consumer receives the Loan Estimate and indicates an intent to proceed, which fee may a creditor generally charge for a covered mortgage application?