39.8k views
3 votes
Two Main Reasons a loan is Non-conforming and not sold to FNMA & FHLMC

User Senkwich
by
7.1k points

1 Answer

6 votes

Final answer:

Non-conforming loans are not sold to FNMA & FHLMC mainly because of their high-risk nature, as exemplified by subprime loans with features like low down-payments and minimal income scrutiny.

Step-by-step explanation:

Two main reasons a loan is non-conforming and not sold to Fannie Mae (FNMA) and Freddie Mac (FHLMC) are related to the subprime loans and their features which include low down-payments, minimal scrutiny of the borrower's income, and risky loan structures such as NINJA loans - No Income, No Job, or Assets. These types of loans were attractive to lenders in the mid-2000s because they could be securitized and sold off, thus the lenders did not bear the financial consequences when the borrowers defaulted. However, for a loan to be sold to FNMA & FHLMC, it must meet certain criteria which these subprime loans do not fulfill due to their high risk.

User Dirty Bird Design
by
7.4k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.