Conforming Loans

Conforming loans are conventional loans that meet bank-funding criteria set by Fannie Mae and Freddie Mac. These government-sponsored enterprises buy mortgage loans from lending institutions and secure them for resale to the investment community. Every year Fannie Mae and Freddie Mac establish limits on what constitutes a conforming loan in a mean home price.

Buying back mortgage loans allows these agencies to provide a continuous flow of affordable funding to banks that reinvest their money into more mortgage loans. Fannie Mae and Freddie Mac only buy loans that conform to repackage into the secondary market - effectively decreasing the demand for non-conforming loans.