RE Finance CH 4

Which of the following is NOT a part of the secondary money market?

A. Fannie Mae B. Sallie Mae <-ANSWER C. GNMA D. Freddie Mac

The institution that provides cash advances to members, including community banks, thrifts, credit unions, and community development financial institutions is _____

FHLB

The largest buyer of residential mortgages in United States today is ______.

FNMA

Who is the largest buyer of residential mortgages in the US

FNMA aka Fannie Mae is the largest buyer of residential mortgages in the United States today.

FNMA and FHLMC

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are government-sponsored enterprises (GSEs). This means that they are privately owned, but receive support from the Federal Government, and assume some public responsibilities FNMA and FHLMC are among the largest corporations in the world. FNMA and FHLMC purchase conforming mortgages, as they are called, which consist of all home mortgages that meet the underwriting requirements of the agencies, and are no larger than the largest loan the government-sponsored enterprises are allowed by law to purchase. In 2015, the maximum was $417,000. The allowable amount is raised every year in line with increases in home prices. The mortgages the government-sponsored enterprises can purchase account for roughly 80% of the conventional (non-FHA/VA) home loan market.

THE FEDERAL AGRICULTURAL MORTGAGE CORPORATION (FARMER MAC)

Government-sponsored enterprise through the Farm Credit Administration with the mission of providing a secondary market for agricultural real estate mortgage loans, rural housing mortgage loans, and rural utility cooperative loans. By creating Farmer Mac to provide a secondary mortgage market for agricultural loans, Congress sought to safeguard the economy from such a credit crisis in the future. The Congressional goal was to increase the availability of competitively priced mortgage financing to farmers, ranchers, and rural homeowners and to provide greater liquidity and lending capacity to agricultural lenders.

What is a collaboration among lenders to share in a loan too big to handle for any one of them called?

Participation loan

What is the market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transactions?

Primary market

REAL ESTATE MORTGAGE INVESTMENT CONDUITS (REMICs)

REMICs are the most common type of mortgage-backed securities established in the Tax Reform Act of 1986. REMICs can vary in both maturity and risk and are backed by mortgage or participation loans. (A participation loan is a collaboration among lenders to share in a loan too big to handle for any one of them.)

What best describes the secondary market?

The secondary market consists of investors who buy mortgage notes.

SECONDARY MORTGAGE MARKET

The secondary money market manages mortgages that were originated in the primary market. The secondary market consists of investors, both public and private, who buy the mortgage notes. The secondary mortgage market is the market for the sale of securities or bonds collateralized by the value of mortgage loans. A mortgage lender, commercial banks, or specialized firm will group together many loans (from the "primary mortgage market") and sell grouped loans known as collateralized mortgage obligations (CMOs), or mortgage-backed securities (MBS) to investors such as pension funds, insurance companies, and hedge funds. Mortgage-backed securities were often combined into collateralized debt obligations (CDOs), which may include other types of debt obligations such as corporate loans. Public entities include Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Government National Mortgage Association (GNMA). Industry lingo has labeled them as FANNIE MAE (FNMA), FREDDIE MAC (FHLMC) and GINNIE MAE (GNMA).

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC OR FREDDIE MAC) Freddie Mac was chartered by Congress in 1970 with a public mission to:

• Make sure that financial institutions have mortgage money to lend • Make it easier for consumers to afford a decent house or apartment • Stabilize residential mortgage markets in times of financial crisis To fulfill this mission, Freddie Mac conducts business in the U.S. secondary mortgage market, meaning that Freddie Mac does not originate loans, and works with a national network of mortgage lending customers. Freddie Mac has three business lines: A Single-Family Credit Guarantee business for home loans, a Multifamily business for apartment financing, and an investment portfolio.

How many banks are in the Federal Home Loan Bank system?

11

What is the entity that is a publicly traded, federally chartered corporation that purchases newly originated and seasoned agricultural loans from lenders?

Farmer Mac

FEDERAL HOME LOAN BANK (FHLB)

Federal Home Loan Banks (FHLBanks or FHLBank System) are eleven U.S. government-sponsored banks that provide reliable liquidity to member financial institutions (not individuals) to support housing finance and community investment. With their members, the FHLBanks represents the largest collective source of home mortgage and community credit in the United States. As a result of the Great Depression the FHLBanks were established by the Federal Home Loan Bank Board (FHLBB) pursuant to the Federal Home Loan Bank Act of 1932. This was to provide funds to building and loan institutions, providing liquidity and making mortgages available. Today, the FHLBank System provides its members (members include thrift institutions, commercial banks,credit unions, insurance companies, and certified community development financial institutions) with a source of funding for mortgages and asset-liability management, liquidity for a members' short-term needs, and additional funds for housing finance and community development. FHLBs provide cash advances to members, which include community banks, thrifts, credit unions and community development financial institutions.

PRIMARY MONEY MARKET

This market is where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Loans are created here in the primary money market. There is also a secondary mortgage market, which is where lenders can sell their loans to interested parties. The primary market is the part of the capital market that deals with issuing of new securities. Companies, governments, or public sector institutions can obtain funds through the sale of a new stock or bond issues through primary market. This is typically done through an investment bank or finance syndicate of securities dealers.

What is Ginnie MAe's main purpose?

To provide financial assistance to low- and moderate-income homebuyers by promoting mortgage credit. In 1934, during the depths of the Great Depression, Congress responded to the crisis by passing the National Housing Act of 1934, which established the Federal Housing Administration (FHA). One of the principal objectives of the FHA was to increase the flow of capital to the housing markets by insuring private lenders against the risk of mortgage default. FHA also was tasked with chartering and regulating a national mortgage association that would buy and sell FHA-insured mortgages.