Which entities typically set the standards that conforming loans must meet?

The correct choice centers around government-sponsored entities (GSEs), which include organizations like Fannie Mae and Freddie Mac. These entities play a crucial role in the housing finance system by establishing the guidelines and standards that loans must adhere to in order to be considered conforming loans.

Conforming loans are those that meet specific criteria set forth by GSEs, which enables them to be purchased in the secondary mortgage market. This standardization helps in managing risk for lenders and ensures uniformity across the lending landscape. By adhering to these standards, loans become more attractive to investors, thereby facilitating liquidity in the mortgage market.

The influence of state governments, individual lenders, and private investors is generally more localized or specific to their organization and does not reflect the broader standards necessary for a loan to be classified as conforming across the national landscape. Therefore, government-sponsored entities are fundamentally responsible for defining the framework within which conforming loans are structured.