Conventional Loan Programs and Secondary Market Flashcards

What is the primary function of the secondary mortgage market?

Answer: To purchase existing mortgage loans from lenders, freeing up capital for new loans

The secondary market purchases loans from originators, enabling lenders to replenish funds and continue making new loans to borrowers.

Which automated underwriting system (AUS) is operated by Fannie Mae?

Answer: Desktop Underwriter (DU)

Fannie Mae's automated underwriting system is Desktop Underwriter (DU), which evaluates loan eligibility and risk for conventional conforming loans.

A conventional loan is classified as 'conforming' when it:

Answer: Meets the guidelines and loan limits set by Fannie Mae and Freddie Mac

Conforming loans adhere to the purchase standards set by Fannie Mae and Freddie Mac, including loan limits, making them eligible for sale in the secondary market.

Which federal agency is responsible for setting the annual conforming loan limits for conventional mortgages?

Answer: Federal Housing Finance Agency (FHFA)

The FHFA sets conforming loan limits annually based on changes in average home prices, as mandated by the Housing and Economic Recovery Act.

What is the minimum down payment allowed on a conventional loan for a primary residence under Fannie Mae's HomeReady program?

Answer: 3%

Fannie Mae's HomeReady program allows qualified low-to-moderate income borrowers to purchase a primary residence with as little as 3% down.

Private Mortgage Insurance (PMI) is required on a conventional loan when the loan-to-value (LTV) ratio exceeds which threshold?

Answer: 80%

When the LTV on a conventional loan exceeds 80%, the lender requires PMI to protect against the increased risk of default.

A conventional loan that exceeds the FHFA conforming loan limits is commonly referred to as a:

Answer: Jumbo loan

Loans exceeding FHFA conforming limits are called jumbo loans; they cannot be sold to Fannie Mae or Freddie Mac and typically carry stricter underwriting requirements.