When reviewing a credit report, an MLO notices a borrower has a charge-off from 18 months ago. How should this derogatory item be addressed in the loan application process?
Correct Answer
B) The MLO should obtain a letter of explanation and assess the borrower's current financial stability
Derogatory items like charge-offs require documentation and explanation but don't automatically disqualify a borrower. The MLO should obtain a letter of explanation detailing the circumstances and evaluate the borrower's overall creditworthiness and current financial stability. Recent charge-offs are more concerning than older ones, but 18 months is still relatively recent.
Why This Is the Correct Answer
Derogatory items like charge-offs require documentation and explanation but don't automatically disqualify a borrower. The MLO should obtain a letter of explanation detailing the circumstances and evaluate the borrower's overall creditworthiness and current financial stability. Recent charge-offs are more concerning than older ones, but 18 months is still relatively recent.
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A borrower wants to shop for homes in multiple price ranges. They have been pre-qualified for $400,000 but want to look at homes up to $500,000. What should the MLO recommend?
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