Finance
Which of the following best describes the 'secondary mortgage market'?
AThe market for second mortgage loans only
BWhere existing mortgage loans are bought and sold among investors and institutions✓ Correct
CThe market for below-prime credit borrowers
DWhere properties are sold after foreclosure
Explanation
The secondary mortgage market is where existing mortgage loans (already originated by primary market lenders) are bought and sold among investors, GSEs (Fannie Mae, Freddie Mac), and other institutions, providing liquidity for primary market lenders.
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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.
AmortizationThe 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.
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.
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