Primary and secondary market

What's a participation certificate?

A mortgage-backed security issued by Freddie Mac

Intermin financing

Has shorter terms and higher interest rates than traditional financing

Freddie Mac's mission is to provide ______, stability, and affordability in the U.S. housing market.

Liquidity

Which organization manages and charters credit unions?

NCUA

How is a loan assumption documented?

The buyer and seller both sign an assumption agreement.

Novation

The substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated.

Which of the following describes a Ginnie Mae investment?

a safe investment

form of interim financing

construction loans

National credit union share insurance fund

insures credit union national deposits

Who originates their own loans?

mortgage bankers

Which of the following is Fannie Mae most likely to purchase?

A conventional fixed-rate mortgage issued by a commercial bank

If Freddie Mac didn't exist, which of the following would be a likely effect?

A decrease in the amount of credit available to loan originators

Estoppel Certificate

A document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest.

Mortgage banker

A financial middleman who, in addition to bringing the borrower and the lender together, makes loans, packages them, and sells the packages to both primary and secondary investors. Also services loans.

Purchase money mortgage

A mortgage given by the seller to the buyer to cover all or part of the sale price. Seller financing.

Which project would a life insurance company be most likely to finance?

A shopping mall

In which of the following situations is a lender prohibited from enforcing an alienation clause?

A transfer between parent and child

Which of the following types of properties may be eligible for purchase by Freddie Mac?

A triplex purchased as a primary residence

Primary market

Banks, thrifts, credit unions, and mortgage companies. Made up of these lenders who originate and fund mortgage loans to consumers. they make money by servicing a loan and charging a fee to prepare the tax records on the property

credit unions

Competitive with large commercial banks because they have nonprofit status, which means being subject to fewer regulations and translates to greater flexibility in lending. run by board of directors, whose members are elected from the credit union membership

CFPB

Consumer Financial Protection Bureau

Non Conforming loans

Dont meet all the underwriting standards of Fannie Mae or Freddie Mac or are greater than the loan limits the CFPB has established.

Fannie Mae

Established as the Federal National Mortgage Association FNMA in 1938 GSE regulated by the FHFA(Federal Housing Finance Agency) Goal is to expand consumer access to mortgage credit and the way it meets that goal has evolved over time

Which banking-related entity shares similarities with the purpose and function of the NCUA?

FDIC

Primarily purchases conventional loans from commercial banks providing lenders with capital to make additional loans Also pays collection fee when purchasing the loans these fees, as well as origination fees collected when issuing the loans, provide lenders with income.

Fannie Mae

Government Sponsored Enterprises

Fannie Mae and Freddie Mac Regulated by the federal housing finance agency FHFA and play an integral role in providing capital to lenders in the housing market by making borrowing easier and more cost effective

FDIC

Federal Deposit Insurance Corporation: A federal guarantee of savings bank deposits initially of up to $2500, raised to $5000 in 1934, and frequently thereafter; continues today with a limit of $100,000

FHFA

Federal Housing Finance Agency

3 biggest lenders

Freddie Mac Fannie Mae Gennie Mae

Freddie Mac

Freddie Mac was created as the Federal Home Loan Mortgage Corporation (FHLMC) in 1970 with a stated mission to "provide liquidity, stability, and affordability to the U.S. housing market." Freddie Mac purchases conventional conforming mortgages from thrifts and mortgage-related securities, and then packages these into MBSs called participation certificates (PCs). PCs are sold to investors. The money received from investors provides capital for Freddie Mac to purchase additional loans from originators. Originators receive money from Freddie Mac and can continue to make loans in their communities. Freddie Mac guidelines: Property type: Primary residence that is a single-family home, condo, or manufactured home, or residential properties with as many as four units, a single-unit second home, or residential investment properties LTVR: Varies depending on product Amortization type: Fixed or adjustable rate Purpose of loan: Purchase or refinance Loan term: 15, 20, 30, or 40 years Down payment: Varies depending on product Borrower credit score A primary difference between the underwriting guidelines Freddie Mac and Fannie Mae use relates to debt-to-income ratios. Fannie Mae considers total debt-to-income as well as the housing debt-to-income ratios for borrowers. Freddie Mac focuses on total debt-to-income.

Which institution guarantees mortgage-backed securities with the full faith and credit of the United States?

Ginnie Mae

Which statement most accurately describes the role and function of Ginnie Mae in the secondary mortgage market?

Ginnie Mae insures MBSs made up of government-insured or -guaranteed loans.

Ginnie Mae

Ginnie Mae was created as the Government National Mortgage Corporation in 1968 under the Department of Housing and Urban Development (HUD) and guarantees certain MBSs with the "full faith and credit of the United States." This guarantee makes MBSs a very safe investment and assures investors they'll receive timely principal and interest payments. Ginnie Mae guarantees MBSs that contain loans insured or guaranteed by a U.S. government agency, including the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), Department of Agriculture's Rural Housing Service, and HUD's Office of Public and Indian Housing. Ginnie Mae guidelines: Single class securities, which are MBSs called Ginnie Mae I and Ginnie Mae II. Investors in these products receive principal and interest payments pro rata (based on how many shares of the MBS they own). Multiple class securities, such as: Platinum, which combines Ginnie Mae I and Ginnie Mae II, allowing investors who own shares of both to receive a single payment. Real estate mortgage investment conduits, which pay investors according to the class or tranche they're invested in, rather than pro rata.

Ginnie Mae only guarantees mortgage-backed securities that contain loans ______.

Insured or guaranteed by U.S. government agencies

Secondary mortgage market

Is where mortgage loans and servicing rights are bought and sold between the mortgage originators, the middlemen who secure them and investors Where loan notes are sold by lenders and bought by investors

How does Ginnie Mae function differently than Fannie Mae and Freddie Mac?

It doesn't buy loans or issue mortgage-backed securities.

Which of the following statements about Freddie Mac is correct?

It sells participation certificates to investors to raise funds to purchase additional loans from lenders.

Which of the following is a characteristic of the primary mortgage market?

It works directly with borrowers to fund loans.

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.

Vantagestar Ltd. would like to construct a high-end condominium complex. Where will they likely go for financing this project?

Life Insurance company

To qualify for Fannie Mae Location must be in

Location: Must be in the U.S., Puerto Rico, U.S. Virgin Islands, or Guam Form of ownership: Fee simple, leasehold estate, or co-op ownership Type of dwelling: Residential building (attached, detached, semi-detached) on a lot, or in a condo, co-op, subdivision, or planned unit development (PUD) project. Ineligible properties : Include vacant lots, inaccessible properties (can't readily reach them by road), agricultural properties, boarding houses, units in a condo or co-op hotel, and bed-and-breakfast properties, among others. Mortgage eligibility: Property type used to secure the loan: Primary residence, second home, residential investment property Loan-to-value ratios (LTVRs): The amount being financed compared to the value of the property. LTVR depends on credit score, type of mortgage product, number of units in the property, and how the property will be held (e.g., owner-occupied, rental, or vacation property) Purpose of the loan: Purchase vs. refinance Amortization type: Fixed rate vs. adjustable rate Borrower eligibility: Homebuyer education: This may be required for first-time buyers, buyers purchasing multi-unit dwellings, or those using non-traditional financing. Debt-to-income ratios: This looks at the borrower's debt load, including the potential housing payment, compared to income. Down payment: How much is the borrower putting down to obtain the loan, and was that money a gift? Credit (FICO) score: This number indicates how creditworthy a borrower is. Borrowers with lower credit scores may be required to make higher down payments. Borrowers obtaining loans with higher LTVRs may need to have a higher credit score to qualify

Conforming loans

Meet the underwriting standards of Fannie Mae or Freddie Mac and fall withing the limits established by the consumer financial protection Bureau CFPB

Life insurance companies participate in real estate in the ______ arena.

Mortgage blocks from secondary mortgage market

What does NCUA

National Credit Union Administrations

What entity insures credit union national deposits?

National Credit Union Share Insurance Fund

Several actions take place on the secondary mortgage market. Which of these is a common activity?

Packaging loans into mortgage-backed securities

Joe works for a life insurance company that funds commercial investment projects and often insures these projects by insisting on an equity position. What type of financing does this describe?

Participation

What are the types of institutions that issue loans directly to consumers commonly called?

Primary market players

private

Private lenders can be local, regional, and national lenders and may even be individual entrepreneurs who loan money to others. Private loan companies may charge higher fees and interest to the borrower. When they feel it's necessary, they may place a lien on the property or request collateral to protect the loan. Borrowers choose a private loan company if they can't secure financing from other sources.

Which of the following is one of the desired outcomes of Freddie Mac's activities?

Provide stability in the U.S. housing market

mortgage-backed securities (MBS)

Securities that cheaply bundle and quantify the default risk of the underlying high-risk mortgages

Pam is taking out a mortgage for her home purchase. Which of the following is a true statement?

She will be working with lenders in the primary mortgage market.

Which of the following are ways a private loan company insulates themselves from the risk of lending funds to a borrower who has had problems securing them elsewhere?

They may charge higher interest, higher fees, and require the borrower provide collateral to secure the loan.

The mortgage industry is made up of the primary and secondary markets. What's the role of the primary mortgage market?

To originate and fund mortgage loans to consumers

What's the role of the primary mortgage market?

To work with borrowers in originating and funding mortgage loans

When a new buyer makes the payments on the seller's loan, it is considered "subject to,"

but an alienation clause can't exist in the security instrument.

The middlemen or mortgage aggregator

buy the loan from the financial institutions then package the loans into mortgage backed securities MBS to sell

How does a lender in the primary mortgage market earn money when acting as a loan servicer?

by preparing tax records One way that a primary mortgage market lender can earn money is by servicing a loan and charging a fee to prepare the tax records on the property.

Georgette and Elise are buying a home together, and have taken out a loan with a private loan company. They'll pay a bit more interest, and larger fees, but they feel it's worth it to have the home they've always dreamed of. What else might the private loan company require?

collateral

When Fannie Mae purchases a loan, they pay the loan originator a(n) ______ fee.

collection fee

Fannie Mae purchases loans most often from which type of financial institution?

commercial banks

Commercial banks

commonly fund construction loans, interim finanacing, home imporovment loans or home equity loans. derive most of their funds for mortgage lending from demand deposit

Commercial banks offer interim financing in the form of ______ loans.

construction

Which of the following is a form of commercial bank revenue related to mortgage financing?

demand deposits

Which of the following is a guideline used by Freddie Mac when determining if a loan is conforming?

down payment

Credit union membership access act

enacted by president clinton in 1998 expanded membership criteria allowing credit unions to serve more people

The secondary mortgage market buys loans from the primary market. How does this aid the lending market?

ensures funds are available to borrowers

Of the institutions listed, which of these is viewed only as a secondary mortgage market player?

fannie mae

In terms of function and purpose, which of the following is most similar to Fannie Mae?

freddie mac

Prefer to finance large commercial projects rather than tradition single family homes

life insurance companies

National credit union administration NCUA

manages charter credit unions. As an insurer of funds deposited the NCUA acts similarly to the federal deposit insurance corporation

Anyone who acts as a mortgage loan originator

must obtain an MLO endorsement and register with the nationwide mortgage licensing system and registry

life insurance companies

often purchase large blocks of single family mortgages from the secondary market

While Fannie Mae considers total and housing debt-to-income ratios in its underwriting process, Freddie Mac considers ______.

only debt to income

Mortgage bankers

originate their own loans Tend to work for specific lender and offer that institutions products to clients

A ______ is a mortgage-backed security issued by Freddie Mac.

participation certficate

In which market do lenders that originate real estate loans operate?

primary market

Mortgage bankers are mostly what type of enterprise?

private

What type of arrangement allows the buyer to retain title to the property, but places a security interest in the property on behalf of the seller?

purchase money market

Violet purchased a house from Nick, and assumed the existing loan. Nick wants to make sure he isn't liable if Violet ever defaults. What can he do to remove his name from the loan agreement?

request a novation

With a land contract, who retains the title to the property?

s

Purchase loans from the primary lender and helps keep credit available to loan originators

secondary market

Which of the following types of residential dwellings do life insurance companies purchase from the secondary mortgage market?

single family one lot

With an assumption

that liability can be removed by requesting a release of liability or a novation . Release of liability is simply a written agreement that the lender will not hold the original borrower liable for the loan in case of default. A novation replaces the original borrower with the new borrower as the maker of the note. When a new buyer makes the payments

secondary market

the market in which previously issued securities are traded among investors

demand deposit

the money in checking accounts

Which of the following is true about mortgage brokers?

they don't service loans beyond placement

Mortgage broker

works with multiple lenders Seldon invest capital Dont service the loan beyond placemen t