Conforming Loan

Glossary

Banking

Conforming Loan

A conforming loan is a mortgage loan that meets the requirements to be purchased by US government-sponsored enterprises (GSE) such as Fannie Mae or Freddie Mac. This means they have to be below a size threshold. GSEs purchase mortgages from private lenders with a view to pooling them and repackaging them as mortgage-backed securities for on-sale to institutional investors. By selling their mortgages, banks free up capital to extend further mortgages. In the UK and elsewhere, non-conforming mortgages are non-prime mortgages extended to people with poor credit histories or non-standard mortgages e.g. for buy-to-let properties.

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