During a post-application update, a risk reviewer encounters a TILA Ability to Repay QM issue. Which response should resolve the issue before the file moves forward?
Correct Answer
B) Resolve the underwriting condition before closing
Why this is correct: The TILA Ability-to-Repay (ATR) rule requires lenders to make a reasonable, good-faith determination of a borrower's ability to repay before extending a Qualified Mortgage (QM). Resolving underwriting conditions (e.g., income verification, debt-to-income ratio) before closing ensures compliance with ATR, reducing risk of borrower default and lender penalties. Why the other choices are wrong: "Treat the TILA Ability to Repay QM review as complete because the file contains a related HMDA reporting note" is wrong because HMDA (Home Mortgage Disclosure Act) reporting is separate from ATR underwriting. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because borrower preference does not override ATR or program limits. "Use the same treatment for all mortgage products without comparing program requirements" is wrong because ATR standards can vary by product (e.g., QM vs. non-QM). Exam tip: Always finalize underwriting conditions before closing; ATR compliance is mandatory for most mortgages.
Why This Is the Correct Answer
The correct response is "Resolve the underwriting condition before closing" because Processing and underwriting verify title, collateral, income, assets, credit, and conditions before approval.
Why the Other Options Are Wrong
Option A: Treat the TILA Ability to Repay QM review as complete because the file contains a related HMDA reporting note.
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 product, occupancy, LTV, or eligibility limits because the borrower prefers the loan.
Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan. is not correct because it does not apply the rule tested by this file scenario.
Option D: Use the same treatment for all mortgage products without comparing program requirements.
Use the same treatment for all mortgage products without comparing program requirements. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
processing and underwriting review: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to processing and underwriting review; do not choose an exception or shortcut that skips the required rule.
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
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