Which loans must generally be retained in a lender's own portfolio?

The option that is correct focuses on non-conforming loans, which are typically not eligible for purchase by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. Because of this, lenders often choose to keep these loans in their own portfolios. Non-conforming loans do not meet the GSEs' established guidelines regarding loan amount, borrower creditworthiness, or underwriting requirements, making them less liquid in the secondary mortgage market.

Lenders may be hesitant to sell these loans in the secondary market due to the increased risk associated with them, which leads to the decision to retain them within their own portfolios. This allows lenders to manage the risk and return inherent to non-conforming loans more effectively, as they can better control the underwriting and servicing processes for these types of loans.

In contrast, conforming loans meet the specific guidelines set by GSEs, and FHA loans are government-backed loans that also qualify for purchase by GSEs. Private loans may vary widely in terms of guidelines but are also often more easily sold in the secondary market compared to non-conforming loans. Overall, retaining non-conforming loans helps lenders maintain a diverse portfolio and manage associated risks that might deter them from selling these loans.