A mortgage file is paused during a secondary-market screen because of TILA Qualified Mortgage. Which answer should apply the requirement without relying on borrower preference?
Correct Answer
D) Avoid QM features such as negative amortization or interest-only terms
Why this is correct: The Ability-to-Repay/Qualified Mortgage (ATR/QM) rule prohibits certain risky loan features for a loan to be considered a Qualified Mortgage. These prohibited features include negative amortization (where the loan balance increases), interest-only periods, balloon payments (with specific exceptions), and terms exceeding 30 years. "Avoid QM features such as negative amortization or interest-only terms" correctly identifies this core QM requirement. Why the other choices are wrong: "Assume the TILA Qualified Mortgage condition is met because the borrower satisfied the separate HMDA reporting requirement" is wrong because HMDA (data reporting) and QM (loan structure) are completely separate rules; compliance with one does not satisfy the other. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because the ATR/QM analysis must be completed before consummation. "Rely on oral agreement when the rule requires documented compliance" is wrong because ATR requires verified and documented analysis of the borrower's financial information. Exam tip: For a General QM, remember the four prohibited features: No negative amortization, no interest-only, no balloon (with exceptions), and a term not exceeding 30 years.
Why This Is the Correct Answer
The correct response is "Avoid QM features such as negative amortization or interest-only terms" because ATR/QM rules require verified repayment ability and restrict risky QM features.
Why the Other Options Are Wrong
Option A: Assume the TILA Qualified Mortgage condition is met because the borrower satisfied the separate HMDA reporting requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option B: Wait until a regulator asks for the file before applying the federal requirement.
Wait until a regulator asks for the file before applying the federal requirement. is not correct because it does not apply the rule tested by this file scenario.
Option C: Rely on oral agreement when the rule requires documented compliance.
Rely on oral agreement when the rule requires documented compliance. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
ATR/QM repayment-ability rules: 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 ATR/QM repayment-ability rules; 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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