Under the Dodd-Frank Act, a qualified mortgage is defined by?

A qualified mortgage, as defined under the Dodd-Frank Act, emphasizes the importance of the borrower’s ability to repay the loan. This regulation was established to ensure that lenders make loans to borrowers who can reasonably be expected to meet their mortgage obligations without falling into financial hardship. The act outlines specific criteria that a mortgage must meet to be considered "qualified," primarily focusing on the borrower's income, credit history, and debt-to-income ratio.

By insisting on the borrower’s ability to repay, the Dodd-Frank Act aims to promote responsible lending practices and protect consumers from subprime loans that can lead to foreclosure and financial instability. This focus on the borrower’s financial situation is paramount in mitigating risk for both lenders and borrowers in the long term.

The other options do not accurately capture the essence of what defines a qualified mortgage under this legislation. For instance, the absence of closing costs, guarantees from lenders, or flexible terms do not inherently address the crucial issue of ensuring that homeowners are capable of fulfilling loan obligations. Thus, the core principle under the Dodd-Frank Act remains the borrower’s ability to repay their mortgage.