Finance
Lenders who offer non-qualified mortgages (non-QM) are:
AOperating illegally under Dodd-Frank
BOriginating loans outside the QM safe harbor but must still verify ability to repay✓ Correct
CExempt from all lending regulations
DRequired to charge below-market rates
Explanation
Non-QM loans do not meet the QM safe harbor standards but are not illegal. Lenders still must make a good faith, reasonable ability-to-repay determination and are subject to increased legal liability if they fail to do so.
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Key Terms to Know
Private Mortgage Insurance (PMI)
Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
RedliningAn illegal practice where lenders or insurers deny services or charge higher rates in certain neighborhoods based on the racial or ethnic composition of those areas.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
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