What is a "Conforming Mortgage Loan"?

What is a "Conforming Mortgage Loan"?

exh-beggruen-large-cone-2dfigure-2dscratching-2dhead-small1.jpgWhen you work in the Mortgage Business sometimes you need to step back and realize that we may be speaking a foreign language to our clients. I mean there are so many terms if I walked into a computer company and someone said they write in Java I would ask how do you write with coffee. I thought today would be a good day to explain what the term “Conforming Mortgage” meant.

A conforming mortgage is one that adheres to the mortgage guidelines set forth by mortgage securitizers Fannie Mae and Freddie Mac.  At this time Conforming loan amounts max out at $417,000 and can change year to year.

Conforming mortgage are so-called because, literally, they conform to what Fannie and Freddie will allow on a mortgage. 

It’s this last step that makes conforming mortgages so (relatively) inexpensive.  Because the debt is guaranteed, Wall Street doesn’t demand as high of a return as it does for, say, jumbo loans or for sub-prime ones. 

Conforming mortgages are nearly risk-free to investors and their interest rates reflect that.

The opposite of a conforming mortgage is a portfolio loan, a mortgage offered by a local bank to be held on its own books.  Other mortgage types include FHA, VA which are government backed financing because each of these loan types have their own rules and guidelines, the “conforming” rulebook does not apply.

As Mortgage Loans become more difficult to obtain and the majority of paper being wrote is FHA insured next week we will discuss FHA financing and why it is so important to the US housing market at this time.


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