What is a conforming loan and how does it relate to the GSEs and their loan limits?

• A. A loan that does not meet GSE criteria.
• B. Conforming loans meet criteria set by Fannie Mae and Freddie Mac and fall within their purchase/guarantee limits.
• C. Conforming loans are only for jumbo loans.
• D. They are not eligible for sale to the GSEs.

Answer: (B)

Conforming loans are mortgages that meet Fannie Mae and Freddie Mac’s underwriting criteria and stay within their purchase/guarantee limits. Because they conform to these standards and size limits, lenders can sell them to the GSEs or have them guaranteed, which lowers funding costs and provides liquidity in the mortgage market. The loan limit is the maximum amount that can be considered conforming; loans at or below this limit that meet the other criteria qualify as conforming, while larger loans—the jumbo category—do not meet these limits and are typically not eligible for sale to the GSEs. This standardization supports consistent underwriting and easier securitization.