The criteria established by Fannie Mae or Freddie Mac for loans fall under which category?

The criteria set by Fannie Mae and Freddie Mac classify loans as conforming loans. These criteria include guidelines on credit score, debt-to-income ratios, loan limits, and documentation standards, ensuring that the loans meet specific underwriting standards necessary for them to be eligible for purchase by these government-sponsored enterprises (GSEs).

Conforming loans typically adhere to the maximum loan limits set annually by the Federal Housing Finance Agency (FHFA), enabling lenders to offer these loans with more favorable terms, such as lower interest rates, because they can sell the loans on the secondary market. This process increases liquidity in the mortgage market and helps maintain stability.

In contrast, subprime loans do not meet the strict criteria set by Fannie Mae or Freddie Mac and are designed for borrowers with lower credit scores or financial difficulties. Non-conforming loans also fail to meet these standards but due to reasons other than borrower creditworthiness, such as exceeding loan limits. Adjustable-rate loans refer to a loan type where the interest rate can change over time, which isn't directly related to the conforming loan criteria established by Fannie Mae or Freddie Mac.