Which of the following is a requirement for a loan to be considered a Qualified Mortgage?

For a loan to be classified as a Qualified Mortgage (QM), it must adhere to specific standards outlined by the Consumer Financial Protection Bureau (CFPB). One crucial requirement is that the loan cannot have negative amortization. Negative amortization refers to a situation where the amount owed on the mortgage increases over time because the borrower is not paying enough to cover the interest cost, leading to a growing balance rather than a declining one.

The prohibition against negative amortization is put in place to protect borrowers from loans that can increase their financial burden and lead to potential default. By ensuring that a Qualified Mortgage cannot permit this practice, regulations aim to promote responsible lending and ensure that borrowers are less likely to be placed in precarious financial situations.

Other options do not meet the criteria necessary for a Qualified Mortgage. For example, high interest rates might make a loan less favorable but do not inherently disqualify it as a QM. Flexible loan terms, while beneficial in some scenarios, do not align with the stricter definitions that a QM must adhere to. Additionally, there is no mandatory minimum credit score requirement for a loan to qualify as a QM, thus allowing access to more borrowers who may have varying credit profiles.