Finance
Fannie Mae and Freddie Mac are known as:
AGovernment agencies that originate mortgages directly
BGovernment-sponsored enterprises (GSEs) that purchase and securitize mortgages in the secondary market✓ Correct
CPrivate mortgage insurance companies
DFederal banking regulators
Explanation
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are GSEs that buy mortgages from lenders on the secondary market, package them as mortgage-backed securities, and sell them to investors. This provides liquidity to the mortgage market.
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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.
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.
Listing AgreementA contract between a property owner and a real estate broker that authorizes the broker to market and sell the property.
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