Conforming loans represent home loans/mortgages that meet specific underwriting guidelines as set forth by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Fannie Mae and Freddie Mac are often referred to as agencies of the Federal government. While this is true, understand that they are not government owned and operated.
In fact, they are both shareholder owned private corporations which are actively traded on the New York Stock Exchange (NYSE) under ticker symbols FNM (Fannie Mae) and FRE (Freddie Mac).
While Fannie Mae (1938) has historical roots that are slightly different and slightly deeper than Freddie Mac (1970), today they are considered to be very similar in the purpose. Both were created by Congressional charter to direct their efforts to stabilizing the mortgage market while increasing the availability and affordability of homeownership to all classes of Americans.
Prior to the creation of Fannie Mae and Freddie Mac, the mortgage industry consisted primarily of banking type institutions making home loans to homeowners and servicing these loans until they were paid off. The problem was that as an institution began running out of available funds for lending, they would increase their lending interest rate. This lead to widely fluctuating interest rates both locally and nationally.
With the creation of Fannie Mae and Freddie Mac, these mortgage originators (banking type institutions) were suddenly able to replenish their available funds for lending by selling their existing mortgages to Fannie Mae or Freddie Mac. This action made more funds available to homeowners while adding consistency to interest rates throughout the nation.
Each year, Fannie Mae and Freddie Mac establish the maximum loan amount that qualifies for a “conforming” loan as well as re-evaluating existing credit and income requirements, down payment and suitable properties. A twenty-five year history of annual conforming loan limits for one, two, three and four unit properties is provided below.