A quality-control reviewer compares the file facts with Credit Reports and Scoring during an underwriting condition review. Which conclusion is accurate?
Correct Answer
D) Use credit-report information for a permissible purpose
Why this is correct: The Fair Credit Reporting Act (FCRA) strictly limits the use of consumer credit report information to specific "permissible purposes," such as for a credit transaction in which the consumer has applied. Using the information for any other purpose is illegal. The correct answer, "Use credit-report information for a permissible purpose," states this fundamental legal requirement. Why the other choices are wrong: "Ignore a recent inquiry because the borrower says no new account was opened" is wrong because recent inquiries must be reviewed and considered in the credit evaluation process; they cannot be ignored based solely on the borrower's statement. "Calculate DTI before resolving known obligations shown outside the credit report" is wrong because the debt-to-income ratio must include all known, recurring obligations, whether on the credit report or not (e.g., alimony, separate mortgage). Calculating DTI before including them yields an inaccurate figure. "Use the lowest middle score from a different borrower to improve pricing" is wrong because loan pricing and eligibility must be based on the credit scores of the actual borrowers on the loan application; using another person's score is fraudulent. Exam tip: "Permissible purpose" is the legal gatekeeper for credit reports. If there's no permissible purpose, you cannot pull or use the report.
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: Ignore a recent inquiry because the borrower says no new account was opened.
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 B: Calculate DTI before resolving known obligations shown outside the credit report.
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 C: 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.
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