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.).