Primary & Secondary Markets/Financing Concepts

Freddie Mac is ______.

A government-sponsored enterprise Like Fannie Mae, Freddie Mac is a government-sponsored enterprise (GSE).

What's a participation certificate?

A mortgage-backed security issued by Freddie Mac

Which of the following describes a Ginnie Mae investment?

A safe investment There is a guarantee of timely principal and interest payments from a Ginnie Mae MBS, so it would be classified as a safe investment.

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 Eligible property types include a primary residence that is a single-family home, condo, or manufactured home or properties with up to four units, single-unit second homes, and residential investment properties.

When a buyer takes over the seller's original loan with the lender's permission, this is called ______.

An assumption

Mary is assuming Tom's loan. She wants to be sure she has an accurate loan payoff amount. What document will the lender prepare for her?

An estoppel certificate This document basically says, "Stop! Make sure you have all of the facts!"

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

Collection

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

Commercial banks Typically, Fannie Mae purchases home mortgage loans from commercial banks, or big banks, whereas Freddie Mac purchases home mortgage loans from smaller banks and lenders. Additionally, Fannie Mae and Freddie Mac loans are typically conventional loans, which are not insured by the government.

What type of loan meets certain criteria that are accepted by Fannie Mae and Freddie Mac?

Conforming loan

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

Down payment Freddie Mac will only insure conforming loans. To conform, the loan must meet specific standards, including a down payment threshold.

Which institution was created as the Federal National Mortgage Association in 1938?

Fannie Mae

The Government National Mortgage Corporation was created in 1968 under the Department of Housing and Urban Development (HUD) and is more commonly known as ______.

Ginnie Mae

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

Ginnie Mae While all these institutions may guarantee mortgage backed securities, only a Ginnie Mae guarantee carries the weight of the full faith and credit of the United States.

Maggie has a neighbor, Jim, who is facing foreclosure. She likes Jim and wants to help him out, so they agree to do a "subject to" purchase. What does this mean?

Maggie will take over Jim's loan payments without telling his lender she's doing so. When the new buyer makes the payments on a loan as if nothing has changed, this is called a "subject to" purchase.

Private loan companies may be found in many places. There are ______, regional, and local lenders, and even individual entrepreneurs who loan money.

National

What does NCUA stand for?

National Credit Union Administration NCUA stands for National Credit Union Administration, and its purpose is to manage and charter federal credit unions.

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

Only total debt-to-income

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 Participation financing means the lender becomes a participant in the deal in exchange for some equity. This offers added security for the investment.

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 mortgage Purchase money mortgages allow the buyer to retain title to the property, but the seller has security interest in the property.

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

Seller

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

Single-family on one lot

How is a loan assumption documented?

The buyer and seller both sign an assumption agreement.

Which of the following is true about mortgage brokers?

They don't service the loan beyond placement.

Which of the following is a true statement about credit unions?

They have nonprofit status. Credit unions are competitive with large commercial banks because they have nonprofit status, which means being subject to fewer regulations and translates to greater flexibility in lending.

What's the role of the primary mortgage market?

To work with borrowers in originating and funding mortgage loans The primary mortgage market is the part of the mortgage market that borrowers see. In this market, borrowers and lenders work together to process mortgage loans from application through funding and eventual payoff.

Why are life insurance companies less concerned with liquidity than long term security of an investment?

They prefer financing larger projects, which inherently have more long-term security. Life insurance companies prefer to get involved with larger projects, such as shopping centers or apartment complexes. These projects are more long-term investments. Because of this preference, they're less concerned with liquidity.