What is a "non-conforming loan"?

A "non-conforming loan" refers specifically to a type of mortgage that does not adhere to the criteria established by government-sponsored entities like Fannie Mae and Freddie Mac. These criteria can include limits on the loan amount, credit score requirements, and specific documentation of the borrower's financial status.

Since non-conforming loans often exceed these guidelines, they are not eligible for purchase by these entities, which is why they are typically associated with higher risk for lenders. This characteristic distinguishes non-conforming loans from conforming loans, which do meet those established guidelines and criteria.

In this context, the other options do not accurately describe non-conforming loans. They imply adherence to certain regulations or guidelines, which contradicts the definition of non-conforming loans. Understanding this distinction is crucial for anyone involved in consumer lending, as it impacts loan availability, interest rates, and borrower eligibility.