What is the purpose of the General QM category in mortgage lending?

The General Qualified Mortgage (QM) category serves a critical function in mortgage lending by ensuring that loans are sustainable and affordable for borrowers. This category was created in response to the financial crisis to protect consumers and promote responsible lending practices.

A key aspect of General QM loans is that they are designed with standards that aim to prevent borrowers from taking on loans they cannot reasonably repay. Specifically, these standards require lenders to assess the borrower's ability to repay, and include limits on the loan terms and debt-to-income ratios. This minimizes the risk of borrower defaults while providing a clear framework for lenders.

Moreover, the General QM category excludes certain risky loan features, thereby making lending practices more safeguarded. By ensuring loans fall within defined parameters of sustainability and affordability, this category ultimately aims to create a more stable mortgage market and enhance the overall health of the economy.