What defines a "qualified mortgage" under the Dodd-Frank Act?

A "qualified mortgage" under the Dodd-Frank Act is defined by specific criteria designed to reduce the risk of default for both lenders and borrowers. The primary purpose of these criteria is to protect consumers by ensuring that mortgage lenders evaluate the borrower's ability to repay the loan.

Qualified mortgages typically feature limitations on the amount of fees and points that can be charged, restrictions on loan terms (such as a maximum of 30 years), and a prohibition on interest-only payments or negative amortization. Additionally, qualified mortgages must also consider the borrower’s income, employment status, credit history, and other debt obligations, all of which help to create a clearer picture of a borrower's financial situation.

This structure aims to enhance lending standards and avoid the pitfalls that contributed to the mortgage crisis, thus promoting a more stable housing market. By adhering to these defined parameters, lenders can enjoy legal protections against certain liability risks, while borrowers are afforded a clearer understanding of their financial commitments.