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Financing term

Fannie Mae

A government-sponsored enterprise that purchases mortgages from lenders, providing liquidity to the secondary mortgage market.

Why Fannie Mae matters on the exam

This term belongs to Financing. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Fannie Mae

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A conventional loan that meets Fannie Mae and Freddie Mac underwriting guidelines and loan limits is called a:

  1. Jumbo loan
  2. Subprime loan
  3. Conforming loan
  4. Blanket loan
Show answer & explanation

Conforming loan — Conforming loans meet the size limits and underwriting standards set by Fannie Mae and Freddie Mac so they can be purchased on the secondary market; loans above the limit are jumbo loans.

Source: PSI National Real Estate Exam Content Outline §4 Financing

Fannie Mae's role in the secondary mortgage market is to:

  1. Originate new residential loans directly with borrowers through its own retail branches
  2. Set the maximum usury interest rate that lenders may legally charge on residential mortgages within each individual state
  3. Purchase mortgages from lenders, pooling them into securities and replenishing lender funds for new loans
  4. Insure lenders against losses arising from undiscovered title defects on the property, much like a title insurance underwriter would
Show answer & explanation

Purchase mortgages from lenders, pooling them into securities and replenishing lender funds for new loans — Fannie Mae, a federally chartered secondary-market corporation, buys mortgages from originating lenders and pools them into mortgage-backed securities, which replenishes lender capital so more loans can be made to new borrowers.

Source: PSI National Real Estate Exam Content Outline §4 Financing

Freddie Mac was originally created to:

  1. Directly originate mortgage loans to individual consumers through an entire nationwide network of federal retail branch offices
  2. Guarantee mortgage loans made to eligible veterans and active service members, replacing the Department of Veterans Affairs program
  3. Regulate state real estate licensing and administer the national portion of the license examination
  4. Compete with and provide an additional secondary market outlet alongside Fannie Mae, especially for savings and loan lenders
Show answer & explanation

Compete with and provide an additional secondary market outlet alongside Fannie Mae, especially for savings and loan lenders — Freddie Mac was chartered to expand the secondary mortgage market, initially serving savings and loan associations, providing competition and additional liquidity alongside Fannie Mae.

Source: PSI National Real Estate Exam Content Outline §4 Financing

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