Which of the following best describes a "qualified mortgage"?

Prepare for the CFPB Mortgage Compliance Training Test. Study with flashcards and detailed questions and explanations. Master your knowledge and excel in your exam!

A "qualified mortgage" is defined by specific criteria established to enhance consumer protection in the mortgage lending process. This designation is part of the efforts to ensure that borrowers are not trapped in loans they cannot afford or subjected to predatory lending practices.

To qualify as a "qualified mortgage," a loan must meet certain standards set by regulations such as the Dodd-Frank Act, which includes parameters around the borrower's ability to repay, limitations on risky loan features (such as interest-only payments or excessive fees), and a cap on points and fees. These criteria are designed to help safeguard consumers and maintain the stability of the mortgage market.

While the other choices present characteristics of loans, they do not encompass the comprehensive consumer protection measures that define a qualified mortgage. For example, loans with no documentation or those allowing balloon payments can often involve higher risks and do not align with the guidelines that promote responsible lending practices. Similarly, short-term loans with high closing costs may also expose borrowers to financial strain, which contradicts the foundational purpose of a qualified mortgage.

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