What defines a Qualified Mortgage (QM)?

• A. A QM meets specific criteria designed to promote safer lending; it provides lenders with protections and set underwriting standards.
• B. A loan that never adjusts.
• C. A government guarantee.
• D. A mortgage used exclusively for investment properties.

Answer: (B)

Qualified Mortgage is defined by the Ability-to-Repay rule as a loan that meets specific underwriting criteria designed to ensure the borrower has the ability to repay and to give lenders a safe harbor from certain liabilities if those criteria are met. These criteria include verifying income and assets, keeping points and fees under a reasonable limit, assessing the borrower’s debt-to-income ratio, and ensuring the loan terms don’t enable risky features such as negative amortization, interest-only payments, or balloon payments on a first-lien. When a loan meets these requirements, it’s considered a Qualified Mortgage, and lenders have protections if they can show they complied with the underwriting standards. This framework aims to promote safer lending practices and more predictable loan outcomes for borrowers and lenders. A loan that never adjusts is not the defining feature, because some Qualified Mortgages can be adjustable-rate loans as long as they meet the ATR and other criteria.