How does the Dodd-Frank Act relate to QM?

• A. The Act mandated the ATR rule to prevent abusive mortgage lending; QM is a component of that rule.
• B. The Act bans QM loans.
• C. The Act exclusively regulates commercial mortgages.
• D. The Act abolishes escrow requirements.

Answer: (A)

The main idea here is that the Dodd-Frank Act created a framework for lenders to determine a borrower’s ability to repay a mortgage, and Qualified Mortgage is the category of loans that meet those standards. The Ability-to-Repay rule requires a good-faith determination that the borrower can repay the loan before credit is extended. Within that framework, a Qualified Mortgage is a loan that satisfies specific criteria—such as limited points and fees, no negative amortization, no interest-only or balloon payments in many cases, and sound debt-to-income and documentation practices—that indicate affordability. When a loan qualifies as a QM, lenders gain a safe harbor from certain liability if the loan meets the ATR criteria, which encourages responsible lending.

So the correct statement captures that linkage: the Act mandated the ATR rule to curb abusive lending, and QM is a defined component of that rule. The other options aren’t accurate: the Act does not ban QM loans, it doesn’t narrow its scope to commercial mortgages only, and it does not abolish escrow requirements.