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What is the purpose of the secondary mortgage market (e.g., Fannie Mae and Freddie Mac)?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

To purchase mortgages from primary lenders, providing them with liquidity (fresh capital) to make more loans; this keeps money flowing in the mortgage market

  1. A To regulate real estate agents
  2. B To originate loans directly to consumers
  3. C To purchase mortgages from primary lenders, providing them with liquidity (fresh capital) to make more loans; this keeps money flowing in the mortgage market
  4. D To set interest rates

Why this is the answer

Secondary mortgage market: Where existing mortgages are BOUGHT and SOLD (as opposed to the PRIMARY market where lenders originate loans to borrowers).

Key players: FANNIE MAE (FNMA), FREDDIE MAC (FHLMC), GINNIE MAE (GNMA — government-backed loans like FHA/VA).

Purpose: They PURCHASE mortgages from primary lenders (banks, mortgage companies), which: gives lenders fresh capital (liquidity) to make more loans; spreads risk; standardizes loan requirements (conforming loans meet their guidelines); keeps mortgage money flowing and available; MORTGAGE-BACKED SECURITIES (MBS): Pools of mortgages are packaged and sold to investors.

Conforming loans: Meet Fannie/Freddie guidelines (loan limits, underwriting standards); JUMBO LOANS exceed conforming limits.

Impact: The secondary market makes more mortgage credit available and at lower rates by providing lenders liquidity; without it, lenders would run out of money to lend; this is important finance knowledge for brokers — the secondary market's role in providing liquidity and standardizing lending is a key national exam concept.

Source: Real Estate Broker National — Finance, Secondary Mortgage Market

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About this topic: Real Estate Finance

Real estate finance questions cover mortgage types and clauses, qualifying ratios, points and APR, the secondary market, and the financing laws (TILA, RESPA, ECOA) a broker must know. This is one of 16 Broker (National) questions on real estate finance, each with a full explanation on a single study page.

New to this exam? Our Real Estate exam guide explains the format, scoring, and how to prepare.

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