Ch. 7 -Secondary Mortgage Market
When a qualified borrower is approved for a mortgage loan, the loan is referred to as:
"A" paper
Any loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac is called what?
Any loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac is called what?
Fannie Mae does all of the following activities except which?
Administers special assistance programs.
Which of the following is not a nontraditional credit scoring tool?
Expanded Approval
Who is FNMA?
Fannie Mae
Who are the three major players in the secondary mortgage market?
Ginnie Mae Fannie Mae Freddie Mac
What is Ginnie Mae's most heavily traded product and what is the minimum pool size?
Ginnie Mae I MBS (Mortgage-Backed Securities) are the most heavily-traded MBS product, based on single-family pools. The minimum pool size is $1 million.
Ginnie Mae developed the first mortgage-backed security in 1970. This security was backed by a pool of FHA and VA mortgages. Ginnie Mae doesn't purchase mortgages; it guarantees that the monthly payments will be made every month.
Ginnie Mae has two types of mortgage-backed securities (MBS) programs. Ginnie Mae I MBS are based on single-family pools and are Ginnie Mae's most heavily-traded MBS product. Ginnie Mae II MBS are modified pass-through mortgage-backed securities. Fannie Mae pools loans that generally conform to their standards and converts them into single-class mortgage-backed securities known as Fannie Mae MBS, which they then guarantee as to timely payment of principal and interest. The mortgages that back a Fannie Mae MBS are held in a trust on behalf of Fannie Mae MBS investors and are not Fannie Mae assets. Fannie Mae has two automated underwriting systems available for users. Desktop Underwriter (DU)® Desktop Originator (DO)® Fannie Mae has three important special programs available. Neighborhood Champions mortgages make home buying easier for teachers, police officers, firefighters, nurses, hospital workers and other community service professionals. American Dream Commitment is Fannie Mae's ten-year pledge to help 6 million families, including 1.8 million minority families, become first-time homeowners. America's Living Communities Plan supports communities' visions for neighborhood revitalization and development. Fannie Mae has developed a variety of mortgage products that include the following: Adjustable Rate Balloon Fixed Rate Home Construction & Renovation No/Low Down Payment Reverse Mortgages for Seniors
Which statement about Ginnie Mae is not true?
Ginnie Mae is a former government agency that became a private corporation in the 1970s.
All of the following are primary mortgage market lenders except which?
Holding warehouse agencies
Which mortgage products offer flexible underwriting, low-to-no down payments, expanded loan-to-value (LTV) ratios and other special underwriting features to underserved qualified borrowers?
Home Possible
What do Home Possible mortgages do?
Home Possible Mortgages offer flexible underwriting, low-to-no down payments, expanded loan-to-value (LTV) ratios and other special underwriting features to underserved qualified borrowers.
What was the first mortgage-backed security called and why was it called this?
It was called a pass-through security because the monthly principal and interest payments were collected from the borrowers and then "passed through" to the investors.
The secondary mortgage market consists of holding warehouse agencies that purchase a number of mortgage loans and assemble them into one or more packages of loans for resale to investors.
Mortgage funds can be shifted to where they are most needed in a variety of ways. Lenders can sell loans to one another. One institution can sell a part interest in a block of loans to another institution. A more common way of shifting funds is through the use of mortgage-backed securities (MBS), which are backed by a pool of mortgages. Important players in the secondary mortgage market are: Ginnie Mae - Government National Mortgage Association (GNMA) - a government agency Fannie Mae - Federal National Mortgage Association (FNMA) - a former government agency that became a private corporation in 1968 Freddie Mac - Federal Home Loan Mortgage Corporation (FHLMC) - a quasi-government agency These agencies, collectively known as government-sponsored enterprises (GSE), purchase loans or guarantee mortgage-backed securities issued by lenders.
Name and explain two of Fannie Mae's special programs. (See screen 14 for other correct answers.)
Neighborhood Champions mortgages make home buying easier for teachers, police officers, firefighters, nurses, hospital workers and other community service professionals. America's Living Communities Plan supports communities' visions for neighborhood revitalization and development.
Name three Freddie Mac fixed rate programs and name one feature of each. (See screens 21 and 22 for other correct answers.)
Streamlined Purchase - Offering 400 - Borrowers pay a nominal fee or higher interest rates for a loan with less documentation and faster processing. Affordable Merit Rate Mortgages - Designed for borrowers with weak credit reputations or past credit challenges. Alt 97 Mortgage - Borrower can use alternative sources of funds not permitted for other mortgages Freddie Mac purchases.
Why did the federal government establish Fannie Mae?
The federal government established Fannie Mae to increase the flow of mortgage money by creating a secondary market to purchase Federal Housing Administration (FHA)-insured mortgages.
What is the role of the secondary mortgage market?
The secondary mortgage market consists of holding warehouse agencies that purchase a number of mortgage loans and assemble them into one or more packages of loans for resale to investors.
Which program is not a Freddie Mac tool to help consumers?
Forward Commitment
Freddie Mac has a variety of fixed-rate mortgage products that include the following: 15-, 20-, 30- and 40-year terms Freddie Mac 100 Streamlined Purchase - Offering 400 Streamlined Purchase - Offering 401 Affordable Merit Rate Mortgages Alt 97 Mortgage Guaranteed (Section 502) Rural Housing (GRH) Mortgages HUD - Guaranteed Section 184 Native American Mortgages
Freddie Mac has several other mortgage products, including adjustable and balloon mortgages, mortgages designed for borrowers with less-than-perfect credit and a group of products called Home Possible Mortgages, which offer flexible underwriting, low-to-no down payments, expanded loan-to-value (LTV) ratios and other special underwriting features to underserved qualified borrowers. Freddie Mac presents a wide range of options to fund the acquisition, refinance, moderate rehabilitation, and new construction of multifamily properties that offer affordable rents to families with low- and very low-incomes through programs such as: Forward Commitment, Bond Credit Enhancement, Low-Income Housing Tax Credit Investments, and LIHTC Tax Credit Moderate Rehabilitation. Freddie Mac has been instrumental in developing initiatives and tools for consumers. A particularly important program is called Don't Borrow Trouble. Don't Borrow Trouble is an anti-predatory lending campaign designed to help homeowners avoid scams and resolve any financial difficulties they may be experiencing. Don't Borrow Trouble uses brochures, mailings, posters, public service announcements, transit ads and television commercials to inform the public and answer questions from potential borrowers.
Why was Freddie Mac created and what is its mission?
Freddie Mac was created in 1971 to develop a mortgage-backed security for conventional loans. Freddie Mac's mission is to provide stability, affordability and opportunity to the housing market by putting home ownership within reach for minority populations and making rental housing more affordable.
Which underwriting system is designed for brokers?
Desktop Originator
What automated underwriting systems does Fannie Mae have available for users and for whom are they designed?
Desktop Underwriter (DU) ® is designed for lenders. Desktop Originator (DO) ® is designed for brokers and correspondents.
Explain Don't Borrow Trouble.
Don't Borrow Trouble is an anti-predatory lending campaign, combining extensive public education with comprehensive counseling services. This program is designed to help homeowners avoid scams and resolve any financial difficulties they may be experiencing.
Farmer Mac, the Federal Agricultural Mortgage Corporation (FAMC), was established as a secondary mortgage market for farmers, ranchers and rural homeowners. Farmer Mac deals with agricultural loans in the same way that Fannie Mae and Freddie Mac deal with conventional and government loans.
Farmer Mac has two programs: Farmer Mac I - Farmer Mac purchases or commits to purchase eligible loans. Farmer Mac II - Farmer Mac purchases the "guaranteed" portions of loans guaranteed by the United States Department of Agriculture. The Tax Reform Act of 1986 created a special tax vehicle called a real estate mortgage investment conduit (REMIC) for entities that issue multiple classes in investor interest that are backed by mortgage pools. A REMIC is an investment-grade mortgage bond that separates mortgage pools into different maturity and risk classes. A REMIC is a conduit for tax purposes, meaning that the income of the REMIC is passed through to the investors who report the income on their individual tax returns. A REMIC can issue mortgage securities in a wide variety of forms. Fannie Mae and Freddie Mac are among the major issuers of REMICs. Click here if you would like to open this summary as a pdf, which you can then print or save to your device: Chapter 7 Summary
What important action took place with the 1968 Charter Act?
Under the 1968 Charter Act, Fannie Mae became a fully private company operating with private capital on a self-sustaining basis. Its role was expanded to buy mortgages beyond traditional government loan limits.
