During intake, a processor wants to omit known monthly obligations from underwriting. What is the best compliant response?
Correct Answer
C) 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, including the consumer's current debt obligations, alimony, and child support. Omitting known monthly liabilities would produce an inaccurate assessment of the borrower's residual income and debt-to-income ratio. The compliant response is to consider all payment obligations, along with income and credit history, for a complete analysis. Why the other choices are wrong: "Clear credit conditions without documenting the explanation for derogatory items" is wrong because ATR and general underwriting standards require documenting explanations for derogatory credit items. "Exclude a known monthly liability because it was omitted from the initial application" is wrong because the creditor must consider all known obligations, even if the borrower initially omitted them. "Use an outdated credit report after new debt is disclosed" is wrong because ATR requires using the most current information available; using outdated data violates the good faith requirement. Exam tip: For ATR, 'consider' means you must actively analyze and include all known obligations in the underwriting calculation.
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: Clear credit conditions without documenting the explanation for derogatory items.
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: Exclude a known monthly liability because it was omitted from the initial application.
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Option D: Use an outdated credit report after new debt is disclosed.
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.
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