FREE CMC Secondary Mortgage Market Questions and Answers

Question 1

Which of the following best describes the primary function of the secondary mortgage market?

Accepted Answer

It provides liquidity to primary lenders by purchasing existing mortgage loans.

Answer

It directly originates new mortgage loans to borrowers.

Answer

It regulates the interest rates charged by primary lenders.

Answer

It offers mortgage insurance to protect lenders against borrower default.

Question 2

A mortgage originator has a large portfolio of recently closed conventional loans and wishes to free up capital to make more loans. Which entity would most likely purchase these loans to facilitate this goal?

Accepted Answer

Fannie Mae or Freddie Mac

Answer

A local credit union

Answer

The Federal Reserve Bank

Answer

A private mortgage insurance company

Question 3

What is the main benefit for a primary mortgage lender to sell loans into the secondary mortgage market?

Accepted Answer

It enables the lender to replenish funds and originate more new loans.

Answer

It increases the lender's exposure to interest rate risk.

Answer

It allows the lender to hold more loans in its portfolio for longer terms.

Answer

It directly reduces the borrower's interest rate on their mortgage.

Question 4

Which of the following mortgage-backed securities (MBS) components represents a claim on the cash flows generated by a pool of mortgage loans?

Accepted Answer

A security representing an ownership interest in a pool of mortgages

Answer

A promissory note

Answer

A deed of trust

Answer

A mortgage loan application

Question 5

A mortgage loan is considered 'non-conforming' if it does not meet the underwriting standards set by which of the following secondary market entities?

Accepted Answer

Fannie Mae and Freddie Mac

Answer

The Federal Housing Administration (FHA)

Answer

The Department of Veterans Affairs (VA)

Answer

The Consumer Financial Protection Bureau (CFPB)

Question 6

An investor purchases a mortgage-backed security (MBS). The payments received by the investor are directly tied to:

Accepted Answer

The principal and interest payments made by the borrowers in the underlying loan pool.

Answer

The performance of the stock market.

Answer

The interest rates set by the Federal Reserve.

Answer

The profitability of the primary mortgage lender.