Which of the following indicates a risky feature that is excluded from Qualified Mortgages?

Which of the following indicates a risky feature that is excluded from Qualified Mortgages?

• A. Adjustable interest rates
• B. Negative amortization
• C. Fixed interest rates
• D. Short term loans

Answer: (B)

Negative amortization is a risky feature that is excluded from Qualified Mortgages due to its potential to increase the financial burden on borrowers. In a negative amortization scenario, the payments do not cover the interest cost, which causes the outstanding balance of the loan to grow over time. This can lead to significantly higher payments in the future when the borrower may be less able to afford them. The purpose of the Qualified Mortgage (QM) rules is to protect consumers from potentially harmful lending practices and ensure that borrowers can repay their loans without the risk of falling into debt traps. In contrast, adjustable interest rates, while they can introduce fluctuations in monthly payments, are not inherently disallowed in Qualified Mortgages. Similarly, fixed interest rates are a stable option offered by many mortgages, and short-term loans, while they may present a different set of challenges, do not share the same risk profile as negative amortization. Thus, the exclusion of negative amortization from Qualified Mortgages is aimed at safeguarding borrowers from such risks.

Negative amortization is a risky feature that is excluded from Qualified Mortgages due to its potential to increase the financial burden on borrowers. In a negative amortization scenario, the payments do not cover the interest cost, which causes the outstanding balance of the loan to grow over time. This can lead to significantly higher payments in the future when the borrower may be less able to afford them. The purpose of the Qualified Mortgage (QM) rules is to protect consumers from potentially harmful lending practices and ensure that borrowers can repay their loans without the risk of falling into debt traps.

In contrast, adjustable interest rates, while they can introduce fluctuations in monthly payments, are not inherently disallowed in Qualified Mortgages. Similarly, fixed interest rates are a stable option offered by many mortgages, and short-term loans, while they may present a different set of challenges, do not share the same risk profile as negative amortization. Thus, the exclusion of negative amortization from Qualified Mortgages is aimed at safeguarding borrowers from such risks.