Section 17: Real Estate Financing Mortgage Markets
Freddie Mac
A federal government agency Federal Home Loan Mortgage Corporation or FHLMC can purchase any type of loan, but primarily deals with conforming conventional loans from smaller lending institutions (thrifts).
Fannie Mae
A government sponsored enterprise Federal National Mortgage Association or FNMA can purchase any type of loan, but primarily deals with conventional loans from commercial banks.
What is a mortgage-backed security, or MBS?
A pool of mortgages sold to investors
Mortgage Backed Securities
A type of bond representing an investment in a pool of real estate loans
Loan Servicing
Collects mortgage payments, processes tax and insurance payments, and prepares records for other lenders
Loan Origination
Collects origination fees, discount points, and monthly interest payments from borrowers
Which one of these is the method by which the secondary mortgage market makes money? A. Loan origination fees B. Servicing loans C. Interest Payments D. Package and sell loans E. Discount points
D. Package and sell loans
Conventional loans from commercial banks
Fannie Mae
Agricultural and rural loans
Farmer Mac
That three parties to GSEs serve?
Farmers, homeowners and students
Which entity regulates government-sponsored enterprises?
Federal Housing Finance Agency
Which entity's purpose is to keep U.S. finances in check by maintaining balanced and favorable economic conditions?
Federal Reserve System
Conventional loans from smaller institutions
Freddie Mac
Mortgage-backed securities (MBSs); loans insured by a U.S. government agency
Ginnie Mae
In an attempt to maintain a balanced economy, which two of the following items does the Fed regulate?
Interest Rates and Available funds
You know how the secondary mortgage market makes money, but which entity buys its loans?
Investors
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.
In what three ways does the original bank that issued the loan make money from a MBS?
Originating the loan, servicing the loan and charging other associated fees The interest is part of what gets sold to government agencies or government-sponsored enterprises.
Commercial lenders operate in the _____mortgage market, making loans directly to consumers.
Primary
Where banks that originate loans operate
Primary Mortgage market
In which market do lenders that originate real estate loans operate?
Primary mortgage market
The Fed wants to avoid a couple of things in its attempt to maintain a balanced economy. What two things does the Fed try to avoid?
Runaway inflation and serious deflation
Packaging and selling loans
Sells the flow of principal and interest to investors
Controls money availability and what banks can charge for that money
The Federal Reserve System
How do the primary and secondary mortgage markets work together?
The primary market packages loans to sell to the secondary market.
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
The Federal Reserve System
also called the Fed, divides the U.S. into 12 federal reserve districts, and each district is served by a district federal reserve bank. All national banks have to be part of the Fed and must purchase stock in the district banks. The purpose of the Fed is to keep the U.S.'s finances in check, avoiding both runaway inflation and serious deflation. The Fed's goal is to help create balanced and favorable economic conditions. It maintains this balance by regulating the flow of available funds and interest rates at each of its member banks. In other words, the Fed controls how much money is available and what banks can charge for that money.
Most lenders want to sell their loans to the _______________ as quickly and easily as possible.
secondary market
Where loans are sold, held, and serviced
secondary mortgage market
GSEs are regulated by....
the Federal Housing Finance Agency (FHFA)
Primary mortgage market
where banks that originate loans operate They have the cash, and they loan it to borrowers. The players in the primary mortgage market are homebuyers (borrowers) and lenders (commercial banks, credit unions, savings and loans, etc.).