A compliance review finds that a processor wants to omit known monthly obligations from underwriting. What should the MLO do next?
Correct Answer
D) Consider payment obligations, debts, income, and credit history
Why this is correct: The Ability-to-Repay (ATR) rule under 12 CFR 1026.43(c)(2) requires a creditor to consider eight specific underwriting factors. These include the borrower's current obligations (debts), income, and credit history. Omitting known monthly obligations would produce an inaccurate debt-to-income (DTI) ratio and violate the rule. The correct action, "Consider payment obligations, debts, income, and credit history," describes the comprehensive, multi-factor analysis required. Why the other choices are wrong: "Treat disputed accounts as irrelevant without following program or investor requirements" is wrong because disputed accounts may still represent payment obligations and must be evaluated per guidelines. "Ignore a recent inquiry because the borrower says no new account was opened" is wrong because inquiries and borrower statements require verification; they cannot be ignored. "Calculate DTI before resolving known obligations shown outside the credit report" is wrong because DTI must be calculated using all known, verified obligations; calculating it with missing data is non-compliant. Exam tip: For ATR, think "total picture." You must gather and consider all verified information on income, assets, debts, and credit—not just what's convenient or on the credit report.
Why This Is the Correct Answer
The correct response is "Consider payment obligations, debts, income, and credit history". ATR is a multi-factor repayment analysis that includes obligations, income, and credit history.
Why the Other Options Are Wrong
Option A: Treat disputed accounts as irrelevant without following program or investor requirements.
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: 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 C: 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.
Memory Technique
If the stem lists debts or simultaneous payments, bring them into ATR.
Exam Tip
For credit evaluation questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Credit score alone does not satisfy the ATR factor analysis.
More Origination Questions
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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?
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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?
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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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