Which organization buys mortgages from lenders and requires certain types of insurance to be in place?

Which organization buys mortgages from lenders and requires certain types of insurance to be in place?

• A. Federal Home Loan Mortgage Corporation
• B. Federal Deposit Insurance Corporation
• C. Government National Mortgage Association
• D. Mortgage Insurance Corporation

Answer: (A)

The concept here is the function of the secondary mortgage market, where Freddie Mac operates. Freddie Mac buys mortgages from lenders to provide liquidity, standardize underwriting, and help keep mortgage credit flowing. As part of its purchasing standards, it requires certain protections on the loans it buys, such as mortgage insurance for high loan-to-value loans and homeowners insurance to protect the property collateral. This setup reduces risk for lenders and investors in the mortgage-backed securities Freddie Mac helps create. The other entities have different roles: the FDIC insures bank deposits, not mortgages; Ginnie Mae guarantees securities backed by government-insured loans but doesn’t purchase the loans itself; and a Mortgage Insurance Corporation isn’t a federal agency governing these transactions.

The concept here is the function of the secondary mortgage market, where Freddie Mac operates. Freddie Mac buys mortgages from lenders to provide liquidity, standardize underwriting, and help keep mortgage credit flowing. As part of its purchasing standards, it requires certain protections on the loans it buys, such as mortgage insurance for high loan-to-value loans and homeowners insurance to protect the property collateral. This setup reduces risk for lenders and investors in the mortgage-backed securities Freddie Mac helps create. The other entities have different roles: the FDIC insures bank deposits, not mortgages; Ginnie Mae guarantees securities backed by government-insured loans but doesn’t purchase the loans itself; and a Mortgage Insurance Corporation isn’t a federal agency governing these transactions.