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 "Use an outdated credit report after new debt is disclosed" is wrong because ATR requires using the most current information available; using outdated data violates the good faith requirement.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Option D: Use an outdated credit report after new debt is disclosed.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.
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