Mortgage Loan Originator (MLO) Licensing Practice Test 2025 – Your All-in-One Guide to Exam Success!

A loan categorized as "conforming" means that it adheres to the standards and guidelines established by Fannie Mae or Freddie Mac, which are government-sponsored enterprises (GSEs) in the United States. These guidelines include limits on loan amounts, borrower credit requirements, and various underwriting standards. If a loan conforms, it is eligible for purchase by these GSEs, which helps ensure liquidity and stability in the mortgage market.

The other options do not accurately describe what conforms mean in this context. For instance, while many conforming loans may allow for low down payments, they do not necessarily have to be zero down payment loans specific to the criteria set forth by the GSEs. Additionally, not all conforming loans have fixed interest rates; they can also be adjustable-rate mortgages. Lastly, while private mortgage insurance (PMI) may be associated with certain loan types, it is not a defining feature of conforming loans specifically, as PMI is related to the borrower’s equity rather than the loan's eligibility for GSE backing.