Which of the following best defines a qualified mortgage (QM)?

A qualified mortgage (QM) is best defined as a loan that meets specific lending criteria outlined by regulations. These criteria are established to ensure that borrowers have the ability to repay their loans and are intended to protect consumers from risky lending practices.

The definition includes various features such as limits on points and fees, a cap on loan term lengths and debt-to-income ratios, and requirements for verified income and financial resources. By adhering to these standards, a qualified mortgage improves lending practices and reduces the likelihood of defaults, benefitting both lenders and borrowers.

In contrast, loans with adjustable interest rates may not necessarily meet QM standards, as the variability in repayments could lead to an increased risk of default. Loans lacking documentation of a borrower's credit history are generally considered riskier and would not qualify under the QM guidelines designed to ensure transparency and borrower capability. Lastly, loans targeted to high-income borrowers do not inherently meet the QM criteria, as qualified mortgages are applicable to borrowers of varying income levels, contingent on adherence to the regulatory guidelines.