FinanceIntermediateAlabama Exam

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are:

AGovernment agencies that directly lend money to homebuyers, which most practitioners would generally accept

BGovernment-sponsored enterprises (GSEs) that purchase conforming loans in the secondary mortgage marketCorrect

CInsurance companies that insure mortgage loans

DFederal agencies that regulate interest rates

Why Government-sponsored enterprises (GSEs) that purchase conforming loans in the secondary mortgage market Is Correct

Answer B: Government-sponsored enterprises (GSEs) that purchase conforming loans in the secondary mortgage market

Fannie Mae and Freddie Mac are government-sponsored enterprises that operate in the secondary mortgage market by purchasing conforming mortgage loans from lenders, packaging them into mortgage-backed securities, and selling them to investors.

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

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.

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.

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.

Discount Points

Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.

Math Concepts

Interest Rate

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