A risk reviewer is resolving GSE Conforming Loan Limits during a loan setup review. Which action best fits the rule?
Correct Answer
B) Classify loans above the limit as nonconforming or jumbo
Conforming loan limits are set annually by the Federal Housing Finance Agency (FHFA) and represent the maximum loan amount that Fannie Mae and Freddie Mac can purchase for a given property type (e.g., one-unit, two-unit) in a given county. Loans exceeding this limit are classified as nonconforming, often called jumbo loans. Why this is correct: "Classify loans above the limit as nonconforming or jumbo" is correct because this is the direct application of the FHFA rule. If a loan's principal amount is above the conforming limit for its area and property type, it cannot be sold to Fannie or Freddie as a conforming loan and must be treated as a jumbo loan, which typically has different underwriting and pricing. Why the other choices are wrong: "Apply a different loan-program rule without checking the file facts" is wrong because the conforming limit is a specific numerical fact based on county and property type that must be checked against the loan amount. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because the conforming limit is a statutory ceiling, not a flexible guideline based on preference. "Treat the GSE Conforming Loan Limits review as complete because the file contains a related flood insurance note" is wrong because flood insurance compliance is a separate requirement; its presence does not confirm the loan amount is within the conforming limit. Exam tip: Conforming loan limits vary by county and are higher for 2-4 unit properties. Always check the current FHFA limits for the property's location.
Why This Is the Correct Answer
The correct response is "Classify loans above the limit as nonconforming or jumbo" because FHFA conforming loan limits define maximum principal amounts for Fannie Mae and Freddie Mac acquisition.
Why the Other Options Are Wrong
Option A: Apply a different loan-program rule without checking the file facts.
Apply a different loan-program rule without checking the file facts. is not correct because it does not apply the rule tested by this file scenario.
Option C: Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan.
Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan. is not correct because it does not apply the rule tested by this file scenario.
Option D: Treat the GSE Conforming Loan Limits review as complete because the file contains a related flood insurance note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
conforming loan limits: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to conforming loan limits; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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