Finance
Fannie Mae (Federal National Mortgage Association) was created primarily to:
AMake direct mortgage loans to homebuyers
BBuy mortgage loans from lenders, providing liquidity to enable more lending✓ Correct
CInsure mortgages against default
DRegulate mortgage interest rates nationally
Explanation
Fannie Mae was created to purchase mortgage loans from originators (banks, thrifts, mortgage companies) to provide them with funds to make new loans. By creating a secondary market for mortgages, Fannie Mae (and Freddie Mac) expand the availability of mortgage credit.
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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 PointsPrepaid 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
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