### What is the main purpose of the secondary mortgage market? - [x] To increase liquidity of mortgage funds - [ ] To create new mortgages directly with borrowers - [ ] To facilitate the transfer of commercial properties - [ ] To primarily originate mortgages > **Explanation:** The secondary mortgage market primarily exists to increase the liquidity of mortgage funds, allowing institutions to sell bundled mortgage debt to other investors. ### Who are the main participants in the secondary mortgage market? - [ ] Homebuyers and real estate agents - [x] Financial institutions and investors - [ ] Town councils and city planners - [ ] Property management companies > **Explanation:** Financial institutions such as banks and investors are the main participants in the secondary mortgage market. They buy and sell mortgages to improve liquidity and manage risk. ### How do FNMA and Freddie Mac provide stability in the housing market? - [ ] By offering loans directly to homebuyers - [x] By purchasing mortgages from lenders and packaging them into securities - [ ] By regulating interest rates - [ ] By insuring all residential properties > **Explanation:** FNMA and Freddie Mac purchase mortgages from lenders and convert them into mortgage-backed securities, thereby providing stability and liquidity to the housing market. ### What kind of securities are mortgage-backed securities? - [ ] Equity securities - [x] Debt securities - [ ] Commodity securities - [ ] Derivative securities > **Explanation:** Mortgage-backed securities are debt securities composed of a pool of home loans. Investors receive periodic payments from the interest and principal payments made by borrowers. ### Which market do borrowers directly interact with to get a mortgage loan? - [ ] Secondary mortgage market - [ ] Derivatives market - [x] Primary mortgage market - [ ] Commodity market > **Explanation:** Borrowers interact with the primary mortgage market to negotiate and receive new mortgage loans from financial institutions before these mortgages can potentially be sold in the secondary mortgage market. ### Why is the secondary mortgage market important for lenders? - [ ] It provides centerpiece loans at reduced rates - [x] It helps lenders manage liquidity and reduce risk - [ ] It offers direct consumer loan services - [ ] It generates extensive home crop loans > **Explanation:** The secondary mortgage market allows lenders to manage their liquidity and reduce risk by selling mortgages, enabling them to continue offering loans without bearing excessive risks or reducing capital availability. ### What type of market operates through various channels rather than a central trading floor? - [ ] Primary mortgage market - [ ] Stock market - [x] Secondary mortgage market - [ ] Real estate market > **Explanation:** The secondary mortgage market operates through various channels, including auctions and direct transactions, rather than a centralized trading floor. ### Can individual homebuyers participate directly in the secondary mortgage market? - [ ] Yes, any homebuyer can participate directly - [x] No, generally only financial institutions and investors participate - [ ] Homebuyers must obtain specific licenses - [ ] Only during property auctions > **Explanation:** The secondary mortgage market is typically the domain of financial institutions and institutional investors. Individual homebuyers deal directly with lenders in the primary mortgage market. ### How does selling mortgages in the secondary market benefit homebuyers indirectly? - [ ] By providing direct investment income - [x] By ensuring that lenders have sufficient liquidity to fund new loans - [ ] By incentivizing only cash purchases - [ ] By lowering property tax rates > **Explanation:** Selling mortgages in the secondary market ensures that mortgage lenders have sufficient capital to continue offering new loans, which indirectly benefits homebuyers by increasing the availability of mortgage financing. ### What does the sale of mortgages to FNMA or Freddie Mac involve? - [ ] Transfer of deeds - [ ] Property insurance - [x] Bundling into securitized financial products - [ ] Increasing property-market interest rates > **Explanation:** When mortgages are sold to FNMA or Freddie Mac, they are often bundled into securitized financial products like mortgage-backed securities to offer to institutional investors, thus ensuring continuous liquidity flow into the housing finance system.