Which feature is NOT included in the Dodd-Frank Act’s definition of a qualified mortgage?

The Dodd-Frank Act specifies the parameters that define a qualified mortgage (QM) to protect consumers from high-risk lending practices and ensure that borrowers can repay their loans. One critical aspect of a qualified mortgage is that it must have certain borrower protections, including limits on risky features such as interest-only payments.

Interest-only loans do not qualify under the Dodd-Frank Act's definition of a qualified mortgage because they allow borrowers to pay only the interest for a specific period, which can lead to negative amortization. This means that the loan balance does not decrease during the interest-only period, potentially putting borrowers at greater risk if they cannot afford to pay the principal later. As a result, the inclusion of interest-only loans would undermine the consumer protections intended by the Dodd-Frank Act.

In contrast, fixed-rate mortgages and adjustable-rate mortgages can meet the requirements of a qualified mortgage, as long as they adhere to other essential features like having a reasonable capability for the borrower to repay. Similarly, while private mortgage insurance (PMI) is often related to loan types aimed at lower down payments, its absence does not inherently disqualify a mortgage from being considered a qualified mortgage under the Dodd-Frank guidelines.