What is a conventional loan that fails to meet the requirements of the secondary market known as?

A conventional loan that does not meet the requirements of the secondary market is referred to as a non-conforming loan. This distinction is crucial because non-conforming loans do not adhere to the standards set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. These standards involve limits on loan amounts, credit score requirements, and other criteria that determine whether the mortgage can be sold in the secondary market.

Non-conforming loans include any loans that exceed these set limits (such as jumbo loans) or do not satisfy the necessary underwriting criteria. Their characteristics often make them riskier compared to conforming loans, as lenders might have less assurance of being able to sell these mortgages if needed.

Understanding this term is important for mortgage loan officers, as it informs the options available to borrowers and the potential interest rates or terms they might encounter when dealing with non-conforming loans.