What does "QM" stand for in mortgage lending?

In mortgage lending, "QM" stands for Qualified Mortgage. A Qualified Mortgage is a type of loan that meets certain regulatory requirements set forth by the Consumer Financial Protection Bureau (CFPB). These requirements are designed to ensure that borrowers have the ability to repay their loans, thus providing protection for lenders and borrowers alike. The criteria for a Qualified Mortgage include limits on the fees and points that can be charged, parameters around loan features to avoid risky lending practices, and ensuring that borrowers have a reasonable debt-to-income ratio.

The importance of the Qualified Mortgage designation lies in its role in promoting responsible lending practices. Loans categorized as Qualified Mortgages are often seen as more stable and less risky, which can also impact the availability of such loans and mortgage rates for borrowers. Understanding the implications of Qualified Mortgages is essential for mortgage loan originators as it directly ties into compliance with federal regulations and impacts the loan products available to consumers.