fixed income: MBS: non-comforming loan

what is MBS non-comforming loan ? Thanks.

one that does not meet the requirements to be purchased by one of the quasi govt mortgage agencies

Generally it’s because the borrower of the note is of poor credit aka subprime, it’s a jumbo mortgage, or the mortgage is exotic. The GSEs do not purchase mortgages that fit one of the above criteria.

In addition to the poor credit rating mentioned by Chuckrox8, other reasons why the loan may be non confirming are (a) it exceeds the maximum loan-to-value ratio and (b) that it doesn’t have the necessary mortgage insurance. Check out page 358 in reading 57. Cheers

Non-conforming loans, also called jumbo loans, are mortgage loans that are made on properties that are not eligible for insurance by the government programs. Banks and other financial institutions make loans insured by these agencies who then package them and sell them to investors. These are called conforming loans. Non-conforming loans are usually made by private lenders that stipulate their own requirements for approval. These loans serve as part of their investment portfolios.

There are other reasons that loans can be nonconforming; e.g., high loan-to-value, poor collateral quality, poor creditworthiness of the borrower, and so on.

None of this knowledge, however, will help candidates who took the exam eight years ago, and will be of little help to candidates today as mortgage-backed securities are not included in the current Level II curriculum.