What does QM stand for?

The correct answer is "Qualified Mortgage," commonly abbreviated as QM. A Qualified Mortgage refers to a classification of loans that meet specific federal guidelines established under the Dodd-Frank Wall Street Reform and Consumer Protection Act. These guidelines are designed to ensure that consumers are able to repay their loans and to protect them from risky lending practices.

Qualified Mortgages typically include requirements such as limitations on the amount of points and fees that can be charged to the borrower, verification of the borrower's ability to repay the mortgage, and restrictions on risky loan features, such as negative amortization or interest-only payments. By meeting these criteria, lenders are often granted safe harbor status, meaning they have a reduced risk of legal liability for originating loans that comply with these standards.

Understanding what a Qualified Mortgage is critical for those in the mortgage industry, as it impacts loan origination practices and consumer protections.