Private Loan Credit - Non-Conforming Loans
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Non-Conforming Loans
A non-conforming loan is a loan that fails to meet bank criteria for funding.
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Reasons include the loan amount is higher than the conforming loan limit (for mortgage loans), lack of sufficient credit, the unorthodox nature of the use of funds, or the collateral backing it. In many cases, non-conforming loans can be funded by hard money lenders, or private institutions/money.

The flexibility of private money can allow for a much wider range of deals to be funded, although more detailed and substantive collateral and documentation may be required by a lender.

Conforming Loans
Because of its stake in the mortgage market and because of its history, Fannie Mae and Freddie Mac set the limit each year on the size of a conforming loan based on the October-to-October changes in mean home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it. This is because both Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market, making the demand for a non-conforming loan much less. By virtue of the laws of supply and demand, then, it is harder for lenders to sell the loans, thus it would cost more to the consumers (typically 1/4 to 1/2 of a percent.) The conforming loan limit is 50 percent higher in Alaska, Hawaii, Guam and the US Virgin Islands.

Concept of Collateral
Collateral, especially within banking, may traditionally refer to secured lending (also known as asset based lending) as well as more recently as collateralisation arrangements to secure trade transactions (also known as capital market collateralization). The former often presents unillateral obligations, secured in the form of property, surety, guarantee or other as collateral (originally denoted by the term security), whereas the latter often presents billateral obligations secured by more liquid assets such as cash or securities, often known as margin.
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