Unit 4: The Secondary Mortgage Market

When Fannie Mae was reorganized, it became a separate privately owned corporation subject to

Alaska

Fannie Mae was established by congressional charter in 1938 as the Federal National Mortgage Association to expand the availability of mortgage money throughout the country by creating a secondary market to purchase

FHA loans.

Which of the following BEST describes why the public had the perception that the government would not allow Fannie Mae and Freddie Mac to default on their obligations?

Fannie Mae and Freddie Mac were allowed to carry a large line of credit with the U.S. Treasury.

Which act allowed the creation of the Federal Housing Finance Agency (FHFA)?

Federal Housing Reform Act of 2007

Fannie Mae's newest affordable loan product is called

HomeReady®.

Which of the following descriptions of real estate mortgage investment conduits (REMICs) is FALSE?

Ownership is limited to one category of regular interests.

In addition to Fannie Mae and Freddie Mac, the Federal Housing Finance Agency was also made responsible for the

Federal Home Loan Bank.

Participation certificates (PCs) are packages of mortgages that meet specific guidelines that are sold to investors in the secondary market by which entity?

Freddie Mac

Which statement regarding Ginnie Mae is TRUE?

Ginnie Mae works with both issuers and investors of mortgage-backed securities.

Mortgage-backed securities (MBSs) based on FHA and VA loans are insured by

Ginnie Mae.

Freddie Mac was originally chartered to do which of the following?

Provide a secondary market for conventional loans

If the purchasers are willing to make a 10% down payment on the purchase of a $200,000 property, Fannie Mae will allow a seller contribution of

The answer is $12,000. Fannie Mae guidelines allow for a 10% contribution from a seller if the purchasers make a 10% down payment.

A couple making a 5% down payment on the purchase of a new home for $150,000 will be allowed to have a seller contribution of

The answer is $4,500. Fannie Mae guidelines allow for a 3% of sales price contribution from a seller with a 5% down payment. With a 10% down payment, the contribution can be up to 10% of the sales price.

Which of the following is NOT one of the national credit repositories most used today to obtain credit scores of prospective borrowers?

The answer is FICO. FICO is named after the Fair Isaac Corporation, which developed the credit-scoring system used with mortgages.

The Federal Housing Finance Agency (FHFA) regulates all of the following EXCEPT

The answer is U.S. Department of Housing and Urban Development (HUD). The Office of Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Banks—not HUD.

When Fannie Mae was reorganized in 1954 to include financing by private investors, mortgage loans could be purchased at

The answer is a discount. In 1954, Fannie Mae was rechartered as a national secondary mortgage market clearinghouse to be financed by private capital. Fannie Mae was empowered to sell its mortgages, as well as purchase new FHA and VA loans. Fannie Mae's purchases were no longer made at par but at whatever discounted price would develop a reasonable rate of return.

Nontraditional credit sources that may be acceptable to Fannie Mae today include all of the following EXCEPT

The answer is a one-time life insurance payment. Fannie Mae is looking for a pattern of regular, monthly payments for a period of at least 12 months from four sources.

The Ginnie Mae Type I MBS requires all mortgages in the pool of mortgages to

The answer is be all of the same type (e.g., single-family). The Ginnie Mae Type II MBS provides for multiple-issue pools that allow for more geographic dispersal.

Steps taken by the U.S. Treasury Department as part of the Fannie Mae and Freddie Mac bailout included all of the following EXCEPT

The answer is closing of all Fannie Mae and Freddie Mac offices. All offices were not closed, although there were changes in management. By 2017, the bailout appeared to have been paid back with interest.

Freddie Mac's Home Possible® mortgages offer a low down payment option for any of the following EXCEPT

The answer is jumbo loans. Jumbo loans are those that are over the prescribed loan limits for conventional loans. The borrowers would not be eligible for a Home Possible® loan.

One aspect of the original QRM proposal that was of major concern to lenders was

The answer is loans that did not meet QRM standards required the lender to retain 5% of the loan amount. With the dropping of the 5% risk-retention requirement, it is hoped that the lending market will improve.

Ginnie Mae mortgage-backed securities are pools of mortgages used as collateral for the issuance of securities, commonly called

The answer is pass-through certificates. These are called pass-through certificates because the principal and interest payments are "passed through" to the investors.

All of the following are related in some way to Ginnie Mae EXCEPT

The answer is qualified residential mortgages. A qualified residential mortgage (QRM) is a new program being considered by Fannie Mae and Freddie Mac.

Which of the government-sponsored enterprises (GSEs) was cited by the FHFA as having emerged from the recent financial crisis in generally good condition and is now profitable with increasing annual earnings?

The answer is the FHLB. The FHLB is now regulated by the FHFA, receiving praise for having successfully recovered from the financial crisis.

Other lesser-known participants in the secondary market include all of the following EXCEPT

The answer is the Federal Housing Administration (FHA). The FHA insures mortgage loans that are then sold in packages to Fannie Mae or Freddie Mac.

The Housing and Urban Development Act of 1968 changed Fannie Mae to allow it to be reorganized as

a fully private corporation.

Fannie Mae and Freddie Mac are both called government-sponsored enterprises because they retain the benefit of government sponsorship, which includes

a line of credit with the U.S. Treasury.

Freddie Mac's Home Possible® mortgages offer low down payments for first-time and low- to moderate-income homebuyers and provides flexibility to all of the following groups EXCEPT

borrowers who lost their homes to foreclosure.

In addition to the authority to purchase FHA-insured and VA-guaranteed loans, the Emergency Home Finance Act of 1970 gave Fannie Mae the authority to purchase

conventional loans.

Fannie Mae and Freddie Mac have similar qualifying guidelines in all areas EXCEPT

debt ratios used for qualifying applicants.

The actual numerical score included on a credit report provided by a credit reporting agency is used to assist the lender in evaluating

how much risk may be involved in making the loan.

A new trend in the secondary market occurred when Wall Street developed a market for collateralized mortgage obligations (CMOs). These CMOs generally consisted of

loans tied to short-term interest rates.

Loans that do not meet the conforming guidelines established by Freddie Mac, including maximum loan amount and down payment requirements, are called

nonconforming loans.

Freddie Mac generally follows the same conforming loan underwriting standards as Fannie Mae except that it

only considers the total debt-to-income ratio with no set percentage for housing expense.

In 1954, Fannie Mae was rechartered as a national secondary mortgage market clearinghouse to be financed by

private capital.

Fannie Mae and Freddie Mac remain in conservatorship today under

the Federal Housing Finance Agency (FHFA).

Ginnie Mae mortgage-backed securities are fully modified pass-through securities guaranteed by

the full faith and credit of the U.S. government.

Under the terms of the Housing and Economic Recovery Act (HERA), the baseline limit for conforming loans must be adjusted each year by the FHFA to reflect changes in

the median sales price.

The FHFA is responsible for setting goals for the percentage of loans that should be made

to low- and moderate-income households.