Chapter 10 — Exercises

Work these with a calculator and the chapter open. Items marked † have worked solutions in the answers appendix. No answers appear in this file. Where an exercise asks you to write something, write it — the sentences you can produce under time pressure are the only ones you actually have.

Round percentages to two decimal places and dollars to the cent unless told otherwise.

A. Recall and vocabulary

1. † Name the three nationwide consumer reporting agencies and explain, in two sentences, why one borrower can have three different scores on the same morning.

2. Define, in one sentence each, without looking: tradeline, derogatory, charge-off, collection, public record, inquiry.

3. † State the difference between a charge-off and a collection. Then say whether a single debt can produce both, and how you would tell.

4. What is the difference between a soft pull and a hard pull? Give one example of each that would appear on a mortgage borrower's file.

5. † A tri-merge report is produced by whom? Name what that party does that a single bureau does not.

6. List the nine content areas of a tri-merge report from §10.1's Figure 10.1. Then name the two sections you read line by line before saying any number to a borrower.

7. In one sentence each, distinguish a rapid rescore, a credit supplement, and a dispute by what you have in hand before you order it.

8. † "No score" and "bad credit" are not the same thing. Give three concrete reasons a household might have no score, none of which involves a missed payment.

B. Representative score determination

9. † Determine the representative score for the loan in each scenario. Show your step 1 for each borrower before you do step 2.

10. For scenario (e) above, write the two sentences you would say on the phone to the borrower with the 802 scores, who is about to ask why the rate quote is not what they expected.

11. † A colleague tells you their file's representative score is 724 because "the borrowers are 742 and 706 and I averaged them." Identify every error in that sentence, and state what the file's representative score actually is.

12. A borrower pair comes to you with a middle score of 761 for one and 698 for the other. The higher-scoring borrower earns \$9,400 a month; the lower-scoring borrower earns \$2,100 a month and the file qualifies comfortably on the higher income alone. Describe — in the order you would actually do them — the steps you take next, and name the two compliance constraints from §10.3 that govern how you present the options.

13. † The Linden Street file prices at 706. Write, in no more than forty words, the explanation you would give the borrower who has the 742 and is about to ask why their score "doesn't count."

C. Reading a tradeline

14. † For each tradeline, state the remaining term using method A, check it using method B, and say whether the two agree.

15. One of the three tradelines in Exercise 14 is internally inconsistent. Identify it, explain in two sentences why the arithmetic cannot be right, and name three specific conditions that could produce it.

16. † Tradeline (a) in Exercise 14 belongs to your borrower. Which Chapter 4 rule does it put in play, what document will the underwriter require before you may rely on it, and why is the credit report alone not enough?

17. A revolving tradeline reports a balance of \$2,780, a high credit of \$3,010, and a credit limit of "n/a." Compute the utilization a scoring model would most likely be working from. Then state what you do about it, how long it takes, and who pays.

18. Here is a 24-month payment grid, printed most-recent-month-first:

   C C C C C C C 1 C C C C C C C C 1 2 C C C C C C

Describe what this borrower's last two years look like in plain English, identify the most recent delinquency and how many months ago it occurred, and say which single additional field on the tradeline would most change your assessment.

19. † The same grid appears on a different vendor's report, printed oldest-month-first. Restate your answer to Exercise 18. Then write the one-sentence habit that prevents this error permanently.

D. Utilization and the arithmetic of improvement

20. † A borrower has four revolving accounts:

(a) Compute utilization for each account and in aggregate. (b) Compute the total paydown required to bring every account below 30%, and the resulting aggregate. (c) The borrower has \$2,000 available, not more. Compute the aggregate utilization after they spend it. Then explain why the allocation of that \$2,000 does not change the aggregate — and why you would still care where it goes.

21. Using the Linden Street revolving table from §10.4, compute what a \$1,500 paydown applied entirely to the bank card would do to (a) that card's utilization and (b) the aggregate.

22. † A borrower's card statement closes on the 18th. It is the 21st. They can pay \$3,000 today. Explain what happens if they pay today, what happens if they wait until the 16th of next month, and which you recommend given a 45-day contract signed yesterday. Be specific about dates and about what the scoring model actually reads.

23. A file has \$22,400 in verified assets, \$16,900 of cash to close, and a PITI plus MI of \$2,050.00. Compute reserves in months before and after a \$2,600 revolving paydown. Then state the question you must answer before recommending the paydown.

E. Which of these actually helps?

24. † For each action, state helps / neutral / hurts, give the approximate time to effect, and give the one-sentence reason.

(a) Paying a \$4,900 balance on a \$5,000 card down to \$400 (b) Closing three paid-off cards the borrower no longer uses (c) Opening a new credit card to improve credit mix, two weeks before closing (d) Getting a missing credit limit reported by supplement (e) Disputing a 60-day late that genuinely occurred (f) Bringing a currently past-due account current (g) Paying off an eleven-year-old collection three days before the credit refresh (h) Being added as an authorized user on a spouse's 14-year-old card with 6% utilization (i) Paying an auto loan down by \$3,000 (j) Waiting four months

25. Rank (a), (d), and (f) from Exercise 24 in the order you would pursue them on a file closing in forty days, and justify the ordering in terms of documentation available rather than points expected.

26. † Your borrower says: "My brother-in-law says if I dispute everything on my report, whatever they can't verify has to come off, and that's how he got his score up." Write the response you actually give, in no more than eighty words. It must (i) not insult the brother-in-law, (ii) be accurate about the reinvestigation process, and (iii) name the specific transaction risk.

F. Derogatories, records, and the borrower conversation

27. A borrower's report shows a \$1,180 collection listed by a collection agency, and a separate charged-off account from a hospital system with a \$1,180 balance. State what you believe is happening, what you order to confirm it, and what you tell the borrower.

28. † Your credit report comes back clean — no public records. In week three the title commitment shows a \$14,600 judgment against your borrower from four years ago. Explain how both documents can be correct, name the change that produced this situation, and describe what you should have done at application to see it coming.

29. A borrower discloses a Chapter 7 bankruptcy discharged five years ago. It appears on the report. Write two sentences: one stating accurately how long it may remain reportable, and one that does not promise a removal date. Then explain, in one further sentence, why the second constraint exists.

G. Write it

30. † Write the letter. Your borrower pair prices at a 706 representative score. They have \$8,400 across four revolving accounts at 48.84% aggregate utilization, two of the four cards above 84%. They have \$12,623.66 in assets remaining after closing costs. Write the email you send them the evening of day 1. It must:

• state the representative score and how it was determined, in two sentences
• present the paydown option with actual dollar figures and its cost in reserve months
• contain no promise of a score outcome, explicit or implied
• deliver the no-new-credit instruction
• end with a specific request and a deadline

Then reread it and strike every sentence that would embarrass you if it were read aloud in a deposition.

31. Write the script. Draft the ninety-second no-new-credit conversation you deliver at every application, in spoken language. Time yourself saying it. If it runs over two minutes, cut it, not the list.

32. † Write the memo. A processor emails: "Borrower says the \$318 student loan payment on the report is wrong — they're on an income-driven plan and it's actually \$0 right now. Can we just use zero?" Write the reply. Name what you need, from whom, and which chapter's rule ultimately decides what enters the ratio.

H. Judgment and ethics

33. † A borrower asks you to help them dispute a 30-day late from fourteen months ago. It is accurate — they were traveling and missed the due date. They are two points below a pricing band and believe removing it would get them there. They are polite, they are not asking you to lie, and they genuinely did pay every other month on time for nine years.

Write out: (a) what you say, (b) what you do, (c) what you document, and (d) the two rules from §10.10 that make this a closed question rather than a judgment call. Then state honestly what it costs you if they take the loan elsewhere.

34. You are handed a lead by a real estate agent. The borrower has a 587 middle score, three collections, and a repossession from two years ago. Your branch manager's advice is: "Don't waste your time, just tell them to call back next year."

Identify what is wrong with that advice as a matter of law, name the regulation, and describe the process you follow instead. Then describe the business case for doing it right, in terms an unsentimental manager would accept.

I. NMLS-style questions

35. † Two borrowers apply jointly. Borrower A: 715, 690, 742. Borrower B: 680, 705, 699. The representative score for the loan is:

• A. 680
• B. 699
• C. 707
• D. 715

36. Under the Fair Credit Reporting Act, a consumer report may be obtained:

• A. whenever a licensed loan originator requests it
• B. only for a permissible purpose, including a credit transaction initiated by the consumer
• C. at the request of the real estate agent representing the buyer
• D. only after a purchase contract has been fully executed

37. † A tradeline is reported as being under dispute by the consumer during the loan process. The most likely immediate consequence for the file is:

• A. the disputed balance is excluded from the debt-to-income ratio
• B. the credit score is automatically recalculated without the item
• C. the automated findings flag the dispute and the lender must resolve it before relying on them
• D. no consequence; disputes are between the consumer and the bureau

38. Which of the following is a public record as that term is used on a credit report?

• A. a charged-off credit card
• B. a collection account
• C. a bankruptcy
• D. a 90-day late payment

39. † A borrower asks whether paying off a nine-year-old collection will raise the score used for their mortgage. The most accurate response is:

• A. "Yes, paid collections are always removed."
• B. "It depends on the scoring model; the versions used in mortgage lending generally do not disregard a collection simply because it has been paid, so pay it if the program requires it — I can't promise a score change."
• C. "No, paying a collection never affects any score."
• D. "Yes, it will add approximately 25 points."

40. Which action, taken thirty days before closing, is most likely to increase a borrower's back-end debt-to-income ratio without the borrower realizing it?

• A. paying a credit card down to zero
• B. opening a promotional-financing account for furniture
• C. requesting a credit supplement
• D. checking their own credit score on a free app

J. The Loan File extension

41. † The counterfactual. The Linden Street file carries \$4,479.72 of total monthly obligations against \$10,500.00 of income, for a back-end ratio of 42.66%.

(a) Recompute the ratio if Borrower 2's \$429.00 auto had nine payments remaining rather than nineteen. (b) Recompute the ratio with the day-41 furniture account's \$611.00 added to the original figure. (c) State which of those two numbers you can influence on day 1, which you cannot, and what you do about each.

42. Extend the file. Suppose the tri-merge had come back with one difference: Borrower 2's bank card reports a balance of \$3,850 and **no credit limit**, with a high credit of \$3,900.

(a) What utilization is the model most likely reading on that account? (b) What do you order, from whom, and how long does it take? (c) Does this change the representative score you quote today? Explain your answer in one sentence — and be careful.

43. Build the checklist. Write the one-page credit intake checklist you would hand a new loan officer on their first day: every item to read on a tri-merge, in the order to read it, with the derived figure to compute at each step. Maximum fifteen lines. It should be usable by someone who has never seen a credit report, and it should not contain the word "score" until line six or later.