An MLO is reviewing a file in which the borrower's W-2s show $72,000 in annual wages, but the credit report reveals a recently opened personal loan with a $900 monthly payment that does not appear on the loan application's liability section. The borrower claims the personal loan was taken out to pay for home repairs and is 'not related to the mortgage.' The loan has 36 months remaining. The debt-to-income ratio with the undisclosed loan would be 52%, which exceeds the lender's 45% maximum. What is the MOST accurate characterization of the MLO's obligations?

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The MLO must include all liabilities appearing on the credit report in the DTI calculation and cannot proceed with the loan without resolving the DTI issue Under standard underwriting guidelines (Fannie Mae Selling Guide, FHA handbook), all debts appearing on the credit report must be included in the debt-to-income ratio calculation, regardless of the borrower's explanation of their purpose. A personal loan used for home repairs does not receive special treatment — it is still a monthly obligation that affects repayment capacity. The omission of this liability from the application is a red flag for potential fraud (specifically, concealing debts to manipulate DTI). While Fannie Mae guidelines (B3-6-05) do permit exclusion of installment debts with 10 or fewer months remaining, this loan has 36 months remaining and therefore cannot be excluded. A letter of explanation alone does not resolve a DTI violation or override credit report data.

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