FinanceIntermediateAlabama Exam

Fannie Mae and Freddie Mac are:

AFederal regulatory agencies that supervise banks, under typical circumstances

BGovernment-sponsored enterprises that buy mortgages in the secondary marketCorrect

CFHA-approved mortgage servicers

DState housing finance agencies

Why Government-sponsored enterprises that buy mortgages in the secondary market Is Correct

Answer B: Government-sponsored enterprises that buy mortgages in the secondary market

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are government-sponsored enterprises (GSEs) that purchase mortgages from lenders in the secondary market, providing liquidity.

Exam Tip: Finance

Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.

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Key Terms to Know

Loan-to-Value Ratio (LTV)

The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.

Private Mortgage Insurance (PMI)

Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.

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