Finance
The secondary mortgage market primarily serves to:
AProvide direct loans to home buyers
BPurchase existing mortgage loans from lenders, freeing up capital for new loans✓ Correct
CSet maximum interest rates for residential mortgages
DRegulate real estate commission rates
Explanation
The secondary mortgage market (Fannie Mae, Freddie Mac, Ginnie Mae) buys existing mortgage loans from primary market lenders, providing liquidity so those lenders can make additional new loans.
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Key Terms to Know
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.
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.
Math Concepts
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