Section 16 Unit 1 Mortgage Markets and Government Influence
Secondary Market Steps
1.) Lending institutions market their loan to the secondary market. 2.) A secondary mortgage market institution purchases the loan. 3.) Loans are packaged into a mortgage-backed security (MBS). 4.) Investors purchase shares of the MBS. 5.) Money received from investors is used to purchase additional loans.
How does a lender in the primary mortgage market earn money when a loan is originated?
By charging loan origination fees
National banks that offer consumer and business loans
Commercial banks
Member-based cooperatives
Credit unions
The secondary mortgage market buys loans from the primary market. How does this aid the lending market?
Ensure funds are available to borrowers
Companies that primarily finance large, long-term loans
Insurance companies
Purchasers of mortgage-backed securities
Investment groups
Secondary market
Investors in MBSs Freddie Mac Fannie Mae
What could be a consequence if there were no secondary mortgage market?
Lenders might not have funds available to make new loans to the public.
Primary mortgage market lenders make money several ways. One of these ways is by originating loans. Identify two ways in which money is made when a loan is originated.
Loan origination fees Discount points
Which outcome would be likely if the secondary mortgage market didn't exist?
Loan originators would have fewer funds available for lending.
In addition to providing loans and grants for housing, the USDA's RHS also provides programs to assist with creating and improving "essential community facilities" in rural areas. Which four of the following would be considered "essential community facilities"?
Nicely done. The USDA RHS also provides funds and services for non-profits, Native American tribes, and government agencies.
Borrowing money would be cheaper.
No
It would be easier for consumers to obtain a loan.
No
Jessica, a young professional who wants to buy a home in the city
No
Mortgage-backed securities (MBSs) are created when several loans, which usually have similar characteristics, are grouped, or pooled, together and then sold. How does the loan originator make money from an MBS?
Sells the flow of principal and interest
Lenders can also make money by servicing their own loans or loans for other lenders by billing them for services. What three services can the primary mortgage market lenders make money from?
Servicing loans Processing payments Preparing tax records
With all of this money lending and money making going on, which player has the most influence on real estate financing?
The Federal Reserve system
The secondary mortgage market serves a very important role in real estate finance. Which of these statements best describes that role?
The secondary market purchases loans from primary lenders and helps keep credit available to loan originators.
Primary and secondary market players interact in the marketplace. Where do each of these players generally play? Primary Market
Thrifts Commercial banks Credit unions
Donald, a 45-year-old man earning a moderate-income who wants to buy a home in the country
Yes
Dorothy, an elderly woman who needs to make her rural home handicap accessible
Yes
Indicate whether a USDA RHS (Rural Housing Service) program may assist each of the following individuals. Alexa and Jamie, who can't afford the monthly rent on their rural home
Yes
We mentioned that the secondary mortgage market plays an important role in real estate finance. Let's imagine for a moment this market didn't exist. Which of these are possible outcomes? Loan originators would have less funds available for lending.
Yes