Loan Officer Practice Exam

In the case where the credit report does not contain a reference for each significant open debt shown on the loan application, what must the lender do?

1. The borrower must remove the debt from the application.

2. The lender must provide separate credit verification.

3. The borrower must file a request to correct the credit report before the loan can be processed.

4. The lender is prohibited from counting the debt in the DTI ratio.

The correct answer is: The lender must provide separate credit verification.

When a credit report does not include a reference for each significant open debt that is listed on the loan application, it is the lender's responsibility to verify the accuracy and completeness of the information related to that debt. Providing separate credit verification allows the lender to confirm the existence and status of the debt directly with the creditor or through another form of documentation. This step is crucial for ensuring that the borrower's debt-to-income (DTI) ratio is calculated accurately, which impacts the loan underwriting decision and the borrower's ability to repay the loan. This process of separate credit verification helps maintain the integrity of the lending process by ensuring that all debts are accounted for in order to promote responsible lending practices. Addressing discrepancies and obtaining necessary documentation before processing the loan protects both the lender and the borrower from potential issues later on. In contrast, simply removing the debt from the application, requesting corrections to the credit report, or disregarding the debt in the DTI calculations do not address the underlying need for verification. These alternatives could lead to inaccuracies in the loan processing and potential financial risk.