What federal law created the idea of a qualified mortgage?

The correct answer is the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted in response to the financial crisis of 2007-2008. This comprehensive legislation introduced various reforms aimed at increasing consumer protection and reducing risky lending practices. One of the significant features of the Dodd-Frank Act is the establishment of the qualified mortgage (QM) concept.

Qualified mortgages are designed to ensure that borrowers are able to repay their loans by adhering to specific underwriting standards that limit risky features such as negative amortization, balloon payments, and excessive points and fees. The Act outlines criteria that lenders must follow to classify a mortgage as a qualified mortgage, providing legal protections for lenders against certain legal claims if they comply with these standards.

By creating the framework for qualified mortgages, the Dodd-Frank Act aimed to enhance the stability of the mortgage market and protect consumers from predatory lending practices, ultimately fostering a safer lending environment.