Finance
Fannie Mae and Freddie Mac are known as government-sponsored enterprises (GSEs) that:
AOriginate mortgage loans directly to borrowers
BPurchase mortgages from lenders to create a secondary mortgage market✓ Correct
CInsure loans against default
DSet maximum mortgage interest rates
Explanation
Fannie Mae and Freddie Mac purchase mortgage loans from lenders in the secondary market, providing liquidity so lenders can make new loans. They set conforming loan standards and purchase qualifying mortgages.
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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.
Math Concepts
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