AZ SB1273

Establishes qualified mortgage standards for consumer credit transactions secured by a dwelling in Arizona, incorporating federal regulations from 12 CFR Part 1026.

Requires creditors to make reasonable and good faith determinations of consumers' repayment ability by considering income, assets, employment status, debt obligations, credit history, and debt-to-income ratios before making loans.

Creates safe harbor and rebuttable presumption provisions for qualified mortgages that are not higher-priced covered transactions, with stricter requirements for higher-priced loans.

Restricts prepayment penalties to fixed-rate or step-rate mortgages that are qualified mortgages, limiting them to 3 years after consummation with maximum penalties of 2% in years 1-2 and 1% in year 3.

Provides special rules allowing qualified mortgages with balloon payments if creditors verify the consumer can make all scheduled payments from current or reasonably expected income or assets, with restrictions on transfer to other parties.