Which statement best describes the effect of a QM on lenders?

• A. It requires lenders to ignore certain risks.
• B. It provides lenders with protections and set underwriting standards.
• C. It eliminates the need for appraisals.
• D. It increases closing costs.

Answer: (B)

A Qualified Mortgage is designed to standardize how lenders assess a borrower's ability to repay and to reduce their risk in making a loan. When a loan meets the QM criteria, lenders receive protections and a clear set of underwriting standards to follow. This means lenders have a safer path to defend their decisions because the loan is designed to fit predictable repayment terms and avoid risky features.

In practice, this includes features like verifying income, assets, debts, and employment; ensuring the loan doesn’t include risky provisions such as interest-only or negative amortization; and applying limits on points and fees, with many QMs using a debt-to-income cap around 43% for most loans. Because the loan adheres to these standards, lenders gain a safe harbor or presumption of ATR compliance, which lowers liability if questions about ability to repay arise later.

The other statements don’t fit because QM isn’t about making lenders ignore risks, and it doesn’t eliminate the need for appraisals. It also isn’t inherently about higher closing costs; the focus is on protections and defined underwriting criteria to ensure borrowers can repay.