Which document is used internally to convey the rationale for a loan decision?

• A. Loan estimate
• B. Closing disclosure
• C. Appraisal report
• D. Credit memo

Answer: (D)

The document used to convey the reasoning behind a loan decision is the internal credit memo. It captures the underwriter’s analysis of the borrower’s credit history, income and assets, debt-to-income ratio, collateral, and any risk factors, and it outlines why the loan is approved or denied, along with recommended terms and any conditions to clear before closing. This memo is written for internal use by the underwriting team and loan committee to understand the basis of the decision and to communicate it to others involved in the process.

The other documents serve different purposes: the loan estimate is a consumer-facing summary of loan terms at application, the closing disclosure provides the final terms and closing costs to the borrower at closing, and the appraisal report is an independent valuation of the property used to assess collateral.