Conforming loans meet requirements set by Fannie Mae and Freddie Mac, while non-conforming loans do not. The Office of Federal Housing Business Oversight sets the conforming loan limit, which is subject to review and can be temporarily increased to address economic conditions.
Conforming loans are understood in the United States as any loan structured like a mortgage loan and that meets the requirements established in the GSE guidelines. When loans are issued that do not comply with the provisions established by the GSE guidelines, the transaction is understood as non-conforming loans. Many conventional mortgages are structured as non-conforming loans, although all mortgage loans made under the auspices of the government-sponsored Fannie Mae and Freddie Mac must be in the form of a conforming loan.
Conforming lending’s history dates back to 1970. During that year, Fannie Mae was granted the authority to purchase and service residential mortgages. Working in conjunction with Freddie Mac, she developed the structure for the conforming loan. This included the creation of mortgage documents that would be used by a licensed lender to accept and process a conforming loan, as well as the national screening standards that all licensed lenders would be required to use to review loan applications. Although the documents and procedures have undergone some adjustments over the years, the essential elements have remained.
Currently, the Office of Federal Housing Business Oversight is the agency charged with establishing and maintaining the requirements and structure of a conforming loan. This includes setting the conforming loan limit that applies to both Fannie Mae and Freddie Mac. Setting this maximum loan amount helps ensure that the program does not overextend itself and thereby create undesirable economic conditions within the country.
The structure of a conforming loan and the maximum loan amount are subject to review from time to time. In general, this involves analyzing the housing market in relation to the median home price from October of one calendar year to the following October of the following consecutive year. From time to time, the United States government will authorize a temporary increase in conforming loan limits to address current economic conditions. The most recent example of this temporary assignment took place in February 2008.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
