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Conforming loans are
conventional loans that meet bank-funding criteria set by
Fannie Mae
and Freddie Mac.
Both of these stock-holding companies buy mortgage loans
from lending institutions and secure them for resale to the
investment community. Every year, form October to October,
Fannie Mae and Freddie Mac establish limits on what
constitutes a conforming loan in a mean home price.
Buying back mortgage loans allow these agencies to provide a
continuous flow of affordable funding to banks that reinvest
their money back into more mortgage loans. Fannie Mae and
Freddie Mac only buy loans that are conforming, to repackage
into the secondary market - effectively decreasing the
demand for non-conforming loans. |
