Finance
What is the primary purpose of the secondary mortgage market?
ATo provide direct loans to homebuyers at lower rates than banks
BTo purchase mortgage loans from primary lenders, providing liquidity so lenders can make more loans✓ Correct
CTo insure mortgage loans against default
DTo regulate mortgage lending practices nationally
Explanation
The secondary mortgage market (dominated by Fannie Mae and Freddie Mac) purchases mortgage loans from primary lenders (banks, credit unions, mortgage companies). This replenishes the lenders' capital, enabling them to make more loans to homebuyers.
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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.
Math Concepts
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