Finance
Under the Dodd-Frank Act, what is a 'Qualified Mortgage' (QM)?
AAny mortgage that has been approved by Fannie Mae
BA mortgage that meets specific underwriting standards providing lenders with legal protection from ability-to-repay liability✓ Correct
CA mortgage with a fixed interest rate and 30-year term
DA government-backed loan insured by FHA, VA, or USDA
Explanation
A Qualified Mortgage (QM) is a loan that meets specific ability-to-repay standards under the Dodd-Frank Act, including limits on fees, loan features (no negative amortization, interest-only, or balloon payments for most QMs), and debt-to-income ratios. Lenders receive legal protection for making QMs.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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