Vocabulary Quiz #2

Conforming loan

A mortgage loan that conforms to mortgage underwriting guidelines of Fannie Mae or Freddie Mac. These guidelines pertain to max loan limits, lending standards, property type, credit scores, and income cerification documentation.

Negative equity

A situation that occurs when the amount of the outstanding loan is larger than the market value for which the loan is provided, in this case a house.

Equity withdrawl

Borrowing against the difference between the market value of one's house and the existing mortgage debt on that house.

GSE

Government-Sponsored Enterprises are privately owned corporate entities created by US federal charters and statues. GSEs make loans or loan guarantees for limited purposes such as to provide credit for specific borrowers or one economic sector. They do not have the power to commit the goverment financially.

Flipping

Making a series of loans on the same property in quick succession in order to generate repeated rounds of fees, penalties, and other transaction costs for lenders, brokers, property appraisers, realtors, attorneys, or other industry actors. Flipping is driven not by consumer's credit needs, but by industry actor's needs for up-front revenues generated on each new loan.

Fannie Mac

Nickname of the Federal National Mortgage Associate to buy and sell mortgages as an expedient to stimulate capital investment in the residential construction industry that had collapsed because of the great depression. Also to stimulate cash flow.

Freddie Mac

The Federal home loan mortgae corporation is a government sponsored enterprise of the US federal government. It was made to attract investors to finance housing through an expanded secondary mortgage market. Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security (RMBS) to investors to increase the money available for new home purchases.

Ginnie Mae

The Government National Mortgage Association is a government-owned corporation that guarantees bonds back by home mortgages that other government agencies, mainly the federal housing administration and the veterans administration, have guaranteed. Its ensured bonds have the explicit financial backing of the government.