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What is the purpose of the secondary mortgage market?

What happens when Fannie Mae purchases a mortgage?

Name the five items that are included in the Fannie Mae guidelines to which lenders must conform.

What was Ginnie Mae's basic mission when it was established?

What does Ginnie Mae now handle that used to be managed by Fannie Mae?

Briefly explain the two types of mortgage-backed securities programs under Ginnie Mae.

Why was Freddie Mac created?

From whom does Freddie Mac purchase loans, what kind of loans does it purchase, and what does it do with the loans after purchasing them?

Name the four items included in Freddie Mac's guidelines for lenders.

Holding agencies that purchase mortgage loans from primary lenders and package for resale to investors
Warehousing describes a line of credit extended by a commercial bank to a mortgage banker who deposits loans in the commercial bank and then borrows against this collateral to fund new loans.

originally privately owned (a government sponsored enterprise),
no government funding,
does not lend directly;
purchases mortgages, resells as packaged securities;
sells seasoned mortgages
converts pools of loans that conform to Fannie Mae standards into mortgage-backed securities (MBS);
guidelines include loan amount limits, debt ratio, private mortgage insurance, use of gifts, down payment amount

division within HUD;
doesn’t purchase mortgages;
guarantees to lender that monthly loan payments will be made;
issues two types of MBS

Which ginnie Mae?
based on single-family pools
Ginnie Mae’s most heavily-traded MBS product
underlying mortgages generally have the same or similar maturities and the same interest rate on the mortgages
minimum pool size is $1 million

Which ginnie Mae?

modified pass-through mortgage-backed securities
issuer may participate in the Ginnie Mae II MBS either by issuing custom, single-issuer pools or through participation in the issuance of multiple-issuer pools
minimum pool size is $1 million for single-family pools, $350,000 for manufactured home pools and $500,000 for all other pool types

originally privately owned (a government sponsored enterprise);
buys conventional loans from lenders, assembles pools, issues a Guaranteed Mortgage Certificate to investors;
mission is to provide stability, affordability and opportunity to the housing market
guidelines concern loan amount, private mortgage insurance, use of gifts, down payment

Any lender wanting to sell loans to Fannie Mae must
have only conventional loans to sell.
have already tried to sell to Freddie Mac.
follow conventional loan requirements.
conform to Fannie Mae guidelines.

Ginnie Mae operates by
purchasing mortgages from conventional lenders.
guaranteeing to lenders that monthly payments on mortgage loans will be made.
issuing conventional mortgage loans.
selling insurance to the FHA.

With the Ginnie Mae II MBS, any one pool would not include
single family level payment mortgages.
manufactured home loans.
single family adjustable rate mortgages.
a single-family pool size of $500,000.

Freddie Mac issues securities known as
Guaranteed Mortgage Certificates.
Standard Lease-ups.
Multi-issuer Pool Shares.
Insured Mortgage Indexes.

Fannie Mae does not
purchase VA loans.
lend money directly to home buyers.
sell mortgages in open-market transactions.
sell seasoned mortgages.

Which participant in the secondary mortgage market was created to establish a reliable secondary market for the sale of conventional mortgages?
Fannie Mae
HUD
Freddie Mac
Ginnie Mae

Which of the following statements is TRUE?
Fannie Mae receives government funding and backing.
Fannie Mae executes a servicing agreement which allows Fannie Mae to be the collection agent.
Fannie Mae is the largest loan purchaser in the secondary market.
Fannie Mae buys only FHA and VA loans.

Fannie Mae sets loan limits which are adjusted
annually.
every 5 years.
every 7 years.
every 6 months.

Which of the following is NOT a mortgage program offered through Freddie Mac?
Program Plus
Standard Lease-Up
Lease Plus
Premier Lease-Up

Ginnie Mae developed the first mortgage-backed security that was backed by a pool of
FHA and conventional mortgages.
VA and conventional mortgages.
FHA and HUD mortgages.
FHA and VA mortgages.

Sales of Fannie Mae mortgages usually peak when
sales of Freddie Mac mortgages are also peaking.
there are very few VA loans available.
the demand for real estate increases.
there are limited opportunities for other investments.

Which participant in the secondary mortgage market is dedicated to putting homeownership within reach for minority populations?
Fannie Mae
Freddie Mac
Ginnie Mae
FHA

Freddie Mac introduced the first
loans to low income homebuyers.
security backed by conventional loans.
stock that was held primarily by savings and loan associations.
mortgage-backed security for FHA loans.

Which of the following is NOT a Fannie Mae guideline?
Fannie Mae sets loan limits that are adjusted every 5 years.
A borrower's monthly debt payments cannot exceed 28% of the monthly income.
Loans that have a loan-to-value ratio of more than 80% must carry private mortgage insurance.
If the borrower has a 5% down payment, the seller can contribute up to 3% of the closing costs.

With Freddie Mac, if the borrower has a ___% down payment, a seller can contribute up to ____% of the closing costs.
20, 10
5, 10
10, 7
5, 3

Which loan enterprise is considered a private corporation with a public purpose?
FHA
VA
Ginnie Mae
Fannie Mae

With Ginnie Mae's ____________ , monthly principal and interest payments are collected from the borrower and then forwarded to the investors.
mortgage loans
mortgage securities
pass-through securities
investor securities

A Ginnie Mae II MBS ____________ has a single issuer that originates and administers the entire pool.
single-issuer pool
custom pool
pass-through pool
manufactured home pool

Within the Fannie Mae guidelines, a borrower's monthly debt-to-income ration cannot exceed
25%
28%
30%
36%

Fannie Mae MBS are guaranteed as to
minimum income.
fixed interest rate.
timely payment of principal and interest.
20% down payment.

Define a conventional mortgage loan and explain the risk to the lender.

Name five advantages to a conventional loan.

List the three things the lender and/or investor is concerned about with a conventional loan.

What is the basic FHA-insured loan program and what type of properties does it cover?

How are maximum loan amounts set for FHA loans?

Name five FHA loan programs besides the basic program referred to in question #1. (Additional answers can be found on Page #11)

The Veterans Administration offers insured loans to veterans even when other loan options are available. What is wrong with this statement?

Name five situations of many where a veteran may use a VA-guaranteed loan. (Additional answers can be found on Page #14)

What does the VA issued Certificate of Reasonable Value do?

What percent of a VA-guaranteed loan may a veteran borrow with no down payment?

Permanent long-term loan that is not FHA-insured or VA-guaranteed
Market rates determine interest rate on loan
Made through banks, savings and loan associations, credit unions, life insurance companies, pension funds, mortgage bankers, and private individuals

Advantages of conventional loans 5

Disadvantages of conventional loans2

Often required on conventional loans with down payment of less than 20%
Usually insures up to 30% of loan
Protects lender
Payments terminate when loan has been repaid to a certain level and payments have been current

If a borrower in a VA-guaranteed loan defaults,
the VA takes over the property and makes payments to the lender on behalf of the borrower.
the VA reimburses the lender, up to the guaranteed amount, for losses not covered by foreclosure proceeds.
the lender takes the property and also receives the amount guaranteed by the VA.
the VA must pay off the loan balance.

Which of the following is not covered under VA-guaranteed financing?
Veteran home purchase
Veteran home improvement
Veteran refinance of an existing home loan
Veteran purchase of any condominium

A permanent long-term mortgage loan that is not government-backed is a
personal loan.
conventional loan.
primary loan.
commercial loan.

In addition to Section 203(b) loan programs, FHA also offers which of the following programs?
Home equity loans
Loans for mobile homes
Reverse mortgage for owners 65 and older
Graduated payment loans

FHA maximum loan amounts are limited by
borrower debt-to-income ratio.
loan-to-value ratio.
amount of down payment.
housing expense ratio.

Which of the following is an advantage of a conventional loan over a government-backed loan?
Loan approval from a conventional lender can take 60 days.
Conventional loans have low limits on loan amount.
There are a variety of conventional lenders available.
Conventional lenders offer only one loan, making the process less complicated.

With conventional loans originating before July 1999 and insured with a PMI, the law allows a borrower whose equity equals _________ of the purchase price or appraised value to request that the lender cancel the PMI.

Lenders use private mortgage insurance to
minimize their risk when accepting a loan with a low down payment.
increase their rate of return on a loan.
avoid charging origination fees.
bring their loans into compliance with FHA requirements.

On conventional loans, ______________ usually determine the interest rate on the loan.
debt-to-income ratios
property purchase prices
supply and demand
market rates

Who lends the money for a VA loan?
Only savings and loans approved by the VA
Any lending institution approved by the VA
Only banks approved by the VA
Only the VA itself

The basic FHA-insured loan program is provided for loans on
all residential properties.
all properties that are valued at under $1,000,000.
1-4-family residential properties.
all properties that have been refused as collateral by conventional lenders.

The FHA reimburses the lender for losses due to default by the borrower, including
cost of foreclosure.
cost of PMI.
cost of MIP.
cost of collections.

The property is not required to meet the following FHA standard.
Quality of construction
Neighborhood quality
Type of construction
Modern architectural style

The risk of conventional loans to lenders is usually not reflected in
stricter requirements for down payment.
higher interest rates.
flexibility in fees and terms.
requirements for borrower's income qualification.

With a conventional loan, which of the following is the lender and/or investor NOT concerned with?
The current and future value of the property
The attractiveness of other investments that could be made for a better return
The loan applicant's need of financial assistance
The income and income potential of the loan applicant

Briefly explain a home equity loan.

Briefly explain a non-conforming loan.

What happens with a reverse annuity mortgage?

Briefly explain the RHS Direct Loan Program.

Briefly explain the RHS Guaranteed Loan Program.

What functions does an installment land contract perform? 4

For title purposes, how is a wraparound mortgage treated?

What are the roles of mortgage bankers and mortgage brokers?

The feature of an adjustable rate loan that prevents the monthly payment during an adjustment period from varying up or down by more than a set amount is the
periodic cap.
aggregate cap.
payment cap.
negative amortization cap.

In regard to a purchase money mortgage, which of the following is true?
There are three types of purchase money mortgages.
Purchase money mortgages have lower interest rates than traditional bank mortgages.
Purchase money mortgages are often used by buyers without enough savings to cover a traditional down payment.
Purchase money mortgages are often used by buyers with excellent credit.

If the borrower's periodic payment is insufficient to cover the interest owed for the period, causing the loan to increase over the term, this is what kind of loan?
Partially amortized
Negatively amortized
Fully amortized

With a fully amortized loan,
the payment goes first to the principal and then to the interest.
the amount of payment going towards the principal decreases over the life of the loan.
it takes several years for the borrower to increase equity in the property.
the amount of payment changes over the life of the loan.

Norm is buying a furnished condo in Chicago. Which type of mortgage is specifically designed for property and contents?
All Inclusive Mortgage
Package Mortgage
Short Sale Mortgage
Wrapped Mortgage

Which of the following statements is NOT true?
A non-conforming loan would be used when the loan amount is too low to be a conforming loan limit.
A non-conforming loan is one that fails to meet bank or secondary market criteria for funding.
A large portion of real estate loans are qualified as non-conforming.
Non-conforming loans can be riskier than prime loans.

Sal is looking to purchase a new home and has found a furnished one that he especially likes because he has no furniture of his own. What kind of loan should Sal consider?
Package loan
Blanket loan
Home equity loan
Home equity line of credit

Most hard money lenders primarily qualify a loan amount based on
borrower's credit scores.
borrower's income.
purchase price of the property.
value of property used for collateral.

Buyer Jane has a loan which requires her to pay $588.00 per month for 20 years. At the end of the loan period, Jane has to make a final payment of $27, 580. What type of mortgage does Jane hold?
Straight Line Mortgage
Final Cap Mortgage
Balloon Mortgage
Adjustable Rate Mortgage

A developer would most likely obtain which of the following types of mortgages on a new subdivision?
Package mortgage
Blanket mortgage
Open end mortgage
Wraparound mortgage

Why are interest rates generally higher on second loans than on first loans?
Lenders know that the borrower is desperate for cash.
Second loans are not insurable.
There is less demand for second loans.
Second loans are riskier because they are not paid off until first loans are paid in case of default.

Which of the following is true of a non-conforming loan?
It cannot be funded by hard money lenders.
Very few real estate loans are non-conforming loans.
It can be riskier than prime loans.
It is not used when the collateral backing it is considered unorthodox in nature.

In what type of loan does the seller become the lessee and the new owner become the lessor?
Reverse annuity
Sale-leaseback
Open end mortgage
Participation

Sometimes when a loan amount is either more capital or more risk than one lender desires to take on, two lenders will fund a single loan. This type of loan is a
hard money mortgage.
piggyback mortgage.
blanket mortgage.
purchase money mortgage.

Which of the following is NOT a popular adjustable rate index?
Cost of Funds Index
One-year Treasury Bill
Five-year Treasury note
State Home Loan Bank average

Which of the following is a feature of a fully-amortized loan?
It has the same payment amount every month.
It has a different payment amount every month.
At the end of the loan term, there is a remaining balance to be paid off.
A fixed amount of each monthly payment goes to the principal.

A re-subordination agreement is often included in which type of loan?
Piggyback
Home equity
Purchase money mortgage
Hard money mortgage

Since the property itself is used as the only protection against default by the borrower, hard money loans have lower ____________ than traditional loans.
interest rates
monthly payments
loan to value ratios
interest to principal ratios

Which of the following best describes a reverse annuity mortgage?
The monthly payments on a loan decrease over the loan term, leaving a balance to be paid off at the end of the term.
A homeowner borrows an amount equal to the equity in her home, invests it, and pays part of the interest earned each month to the lender.
A homeowner's equity is pledged as collateral for a loan paid out over time. The loan is repaid when the house is sold.
A homeowner buys an annuity and uses the interest from the annuity to pay off a mortgage loan.

With a hard money mortgage, if the property being used for collateral is worth $200,000, how much would the lender most likely advance against the property?
$20,000 - $50,000
$65,000 - $75,000
$130,000 - $150,000
$200,000