Chapter 3 - The Secondary Mortgage Market

Which loan enterprise is considered a private corporation with a public purpose?

Fannie Mae

Who is the largest loan purchaser in the secondary market?

Fannie Mae

What happens when Fannie Mae purchases a mortgage?

Fannie Mae executes a servicing agreement which allows the loan originator to be the collection agent and receive a fee.

Briefly explain the two types of mortgage-backed securities programs under Ginnie Mae.

Ginnie Mae I - based on single-family pools and generally have the same or similar maturities and interest rate on the mortgages. Ginnie Mae II - modified pass-through mortgage-backed securities wherein an issuer may participate by issuing custom single-issuer pools or multiple-issuer pools.

What does Ginnie Mae now handle that used to be managed by Fannie Mae?

Ginnie Mae handles the housing assistance and loan management functions that were originally managed by Fannie Mae.

Freddie Mac issues securities known as __________.

Guaranteed Mortgage Certificates

Ginnie Mae is a division within __________.

HUD

Name the five items that are included in the Fannie Mae guidelines to which lenders must conform.

Loan limits debt-to-income ratio private mortgage insurance gifts seller down payment

Name the four items included in Freddie Mac's guidelines for lenders.

Loan limits private mortgage insurance gifts seller down payments

What is the purpose of the secondary mortgage market?

The purpose of the secondary mortgage market is to provide liquidity (funds) for the primary market (institutional lenders).

With the Ginnie Mae II MBS, any one pool would not include what?

a single-family pool size of $500,000

A Ginnie Mae II MBS ____________ has a single issuer that originates and administers the entire pool.

custom pool

Ginnie Mae doesn't purchase mortgages. It __________.

guarantees monthly payments will be made

Which of the following is NOT a mortgage program offered through Freddie Mac?

lease plus

Fannie Mae does not do what?

lend money directly to home buyers

Freddie Mac has guidelines to which _________ must conform.

lenders

A Ginnie Mae I MBS pool would not consist of what?

single family adjustable rate loans

What was Ginnie Mae's basic mission when it was established?

to create and operate a mortgage-backed security program for the Federal Housing Administration and Veterans Administration mortgages

Why was Freddie Mac created?

to establish a reliable secondary market for the sale of conventional mortgages by and for S&Ls

Within the Freddie Mac guidelines, loan limits are adjusted every __________.

year

Which participant in the secondary mortgage market was created to establish a reliable secondary market for the sale of conventional mortgages?

Freddie Mac

From whom does Freddie Mac purchase loans, what kind of loans does it purchase, and what does it do with the loans after purchasing them?

Freddie Mac purchases conventional loans from savings banks, commercial banks, and mortgage companies, assembles the loans into a pool of mortgages, and issues a Participating Certificate or Guaranteed Mortgage Certificate security backed by the mortgages.

With Freddie Mac, if the borrower has a ___% down payment, a seller can contribute up to ____% of the closing costs.

5,3

Which of the following is NOT a Fannie Mae guideline?

Fannie Mae sets loan limits that are adjusted every 5 years. Guidelines State: A borrower's monthly debt payments cannot exceed 28% of the monthly income. Loans that have a loan-to-value ratio of more than 80% must carry private mortgage insurance. If the borrower has a 5% down payment, the seller can contribute up to 3% of the closing costs.