Before closing, the team discovers that the file has borrower statements but no verified ability-to-repay analysis. What is the safest compliant answer?
Correct Answer
B) Verify repayment ability before consummation using reliable records
Why this is correct: The Ability-to-Repay (ATR) rule, 12 CFR 1026.43(c)(1), requires the lender to collect and verify financial information using reliable third-party records to make a good-faith assessment before the loan is consummated. Unverified borrower statements fail this requirement. Why the other choices are wrong: 'Exclude a verified loss from qualifying income because the borrower prefers the higher figure' is wrong because ATR demands a complete and accurate assessment; omitting known, verified liabilities is deceptive and non-compliant. 'Use stated monthly income after documents show the amount was annual income' is wrong because this is a factual error that grossly inflates income, making the ATR determination unreasonable. 'Average income from an undocumented second job' is wrong because you cannot document or average income from a job whose existence and earnings are unverified. Exam tip: ATR is about proving the borrower can pay. The proof must be in the file, in writing, from independent sources.
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: Exclude a verified loss from qualifying income because the borrower prefers the higher figure.
This choice is not the best answer because it applies the wrong file step for income analysis and documentation; the governing rule is tested by the correct option.
Option C: Use stated monthly income after documents show the amount was annual income.
This choice is not the best answer because it applies the wrong file step for income analysis and documentation; the governing rule is tested by the correct option.
Option D: Average income from an undocumented second job.
This choice is not the best answer because it applies the wrong file step for income analysis and documentation; the governing rule is tested by the correct option.
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.
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?
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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?
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