Finance
Fannie Mae (FNMA) and Freddie Mac (FHLMC) are:
AFederal agencies that originate mortgage loans directly
BGovernment-sponsored enterprises that purchase mortgages in the secondary market✓ Correct
CPrivate insurance companies that insure mortgage loans
DState agencies that regulate mortgage lending in Rhode Island
Explanation
Fannie Mae and Freddie Mac are GSEs (government-sponsored enterprises) that purchase conforming mortgage loans from originating lenders in the secondary market, packaging them as mortgage-backed securities. This provides lenders with liquidity to make new loans.
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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.
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.
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