What is the penalty if you close a Conventional Conforming loan without QM approval?

The correct answer highlights the substantial penalties that can result from closing a Conventional Conforming loan without the required Qualified Mortgage (QM) approval. If a loan is closed without QM approval, the lender potentially faces a liability of up to three years’ worth of interest along with all associated loan costs and legal expenses. This significant penalty serves to enforce compliance with the QM standards, which are designed to protect consumers by ensuring that loans are made based on the borrower's ability to repay.

This framework aims to encourage responsible lending practices and mitigate risks associated with high-cost loans that can lead to borrower default. The risk of such extensive financial repercussions underlines the importance for lenders and mortgage loan originators to secure proper QM approval before finalizing a loan. By adhering to these regulations, lenders can safeguard themselves from severe financial penalties and contribute to a more stable mortgage market overall.