Conventional credit has long referred to loans not guaranteed or insured by the Federal Housing

Administration (FHA), the Veterans Administration (VA), or the Rural Housing Service (RHS).

When 7 CFR Part 1980, Subpart D (and the corresponding RD Instruction 1980-D) was

promulgated in the early 1990’s, a conventional loan was universally recognized in the housing

industry as one where:

or less; and

open and paid as agreed for at least a 24- month period, to include that:

o the applicant was not currently 30 days or more past due on any trade line;

and

o the applicant had not been 60 days or more past due on any trade line over the

past 24 month period; and

o the applicant did not have a foreclosure or bankruptcy in their credit history over

the past 36-month period; and

condition to obtain private mortgage insurance (PMI).

Liquid assets for conventional credit down payment purposes typically consisted of cash or cash

equivalents. Cash or cash equivalents included funds in the applicant’s checking or savings

accounts, or investments in stocks, bonds, mutual funds, certificates of deposit, and money

market funds, unless they were encumbered (pledged as collateral) or otherwise inaccessible

without substantial penalty. Cash equivalents typically did not include funds in Individual

Retirement Accounts, 401(k) accounts, Keogh accounts, or other retirement accounts that were

restricted and may not be accessed without incurring substantial monetary penalties.

A number of non-traditional lending vehicles have emerged over time and have been marketed as

“conventional” but which allow lower down payments and higher debt ratios than traditional

conventional loans. PMI is typically required under these new programs. The actual terms for

these loans vary widely and include interest-only payment loans, graduated payment loans,

negative amortization loans, balloon payment loans, and hybrid adjustable rate loans which

include one or more of the preceding loan terms. Some of these loans were recognized as

subprime loans but were purchased and securitized along with traditional conventional loans.