Chapter 3 - The Primary & Secondary Markets

lending institution, secondary market entity, mortgage-backed securities

First, mortgage funds are given to the home buyer by a ________ _______ in the primary market; then the mortgage is sold to a _______ ______ _______; then the entity may pool the mortgage with many others to create ______-______ _______, which it will sell to investors.

mortgage-backed security

A ______-______ _______ is an investment instrument that has mortgages as collateral.

package

A lender can "_______" a group of similar loans together for sale to one of the secondary market entities.

disintermediation

A phenomenon known as __________ can reduce the supply of funds that local financial institutions have available for mortgage lending.

private-label

Although most mortgage-backed securities are issued by the major secondary market entities, private firms can also buy and pool mortgage loans and issue securities based on the pools. These are referred to as "_____-_____" mortgage-backed securities.

government-sponsored enterprise

An entity that is privately owned but created, chartered, and supervised by the government; functions as a private corporation but must fulfill special legal responsibilities imposed by the government.

government national mortgage association

At the same time that it turned Fannie Mae into a private corporation, Congress created a new wholly owned government corporation, the _______ _______ ______ ______, as an agency within HUD & guarantees securities backed by FHA and VA loans.

conventional loans

Because Fannie Mae and Freddie Mac buy ________ _______, they have a much greater impact on the mortgage industry than Ginnie Mae, which only handles FHA and VA loans.

congress, housing and urban development

Government-sponsored enterprises are chartered by ______ and supervised by the Department of _______ ___ ________ _________.

in portfolio

If a lender does not sell a loan on the secondary market (either by choice or because no one wants to buy it), the lender keeps the loan __ _______ - that is, it holds onto the loan and receives the principal interest payments from the borrower.

government-sponsored enterprise

In 1968, Fannie Mae was recognized as a ________-______ _______.

originate

In the primary mortgage market, home buyers apply for mortgage loans and residential mortgage lenders _______ them.

prime loans, subprime loans

Loans made to borrowers with the highest credit rating (an A rating) are called _____ _____; loans made to less creditworthy buyers are called _________ ______.

secondary market entitites

More often, a lender sells mortgage loans to one of the 3 _______ ______ ______ created by the federal government.

1938

The Federal National Mortgage Association was created in _____.

federal home loan mortgage corporation

The ______ ____ ______ _______ ________ was created in 1970 by the Emergency Home Finance Act.

federal housing finance agency

The ______ _______ _______ ______, under its conservancy power, announced that the government would now guarantee all of the mortgage-backed securities sold by both Fannie Mae and Freddie Mac.

secondary

The ______ market is a national market in which mortgages secured by residential real estate all over the country can be bought and sold.

primary, secondary

The ______ mortgage market is where lenders make mortgage loans; the _______ mortgage market is where lenders sell those loans to investors.

Ginnie Mae

The first mortgage-backed securities program was started by ______ ____ in 1970.

primary, secondary

The industry is divided into 2 "markets" that supply the funds for mortgage loans: the ______ market & the _______ market.

1. fannie mae 2. freddie mac 3. ginnie mae

What are the 3 secondary market entities?

loan origination

_____ ________ includes processing the application, deciding to approve the loan, and then funding the loan.

fannie mae

______ ____ was part of the federal government's efforts to fix unprecedented credit problems during the Great Depression,

freddie mac

______ _____'s original purpose was to assist savings and loan association, which were hit particularly hard by a recession in 1969 and 1970.

loan servicing

______ _______ includes tasks such as processing borrowers' payments, dealing with collection problems, and working with borrowers to prevent default.

underwriting guidelines

________ _______ are the rules lenders apply when they're qualifying loan applicants and decided whether or not to make particular loans.

conventional loans

loans that aren't insured or guaranteed by the government

secondary mortgage market

the financial area in which investors buy mortgage loans from lenders throughout the country.

primary mortgage market

the financial arena in which mortgage loans are originated, where lenders make loans to home buyers.

real estate cycles

up and downs in the level of activity in a real estate market, where a boom may be followed by a slump, or vice versa

securitizing

when a secondary market entity creates mortgage-backed securities by buying a large number of mortgage loans, "pooling" them together and pledging the pool as collateral for the securities.

disintermediation

when depositors withdraw their savings from financial institutions and put the money into other types of investments that have higher yields