What types of loans do FNMA and FHLMC typically securitize?

What types of loans do FNMA and FHLMC typically securitize?

• A. FHA loans
• B. Conventional loans
• C. VA loans
• D. Jumbo loans

Answer: (B)

FNMA (Fannie Mae) and FHLMC (Freddie Mac) are two government-sponsored enterprises that play a significant role in the U.S. mortgage market by purchasing loans from lenders and securitizing them to create mortgage-backed securities (MBS). The type of loans that FNMA and FHLMC typically securitize are conventional loans, which are those that meet specific underwriting guidelines established by these entities. Conventional loans are not insured or guaranteed by the federal government, which distinguishes them from loans such as FHA and VA loans. FHMA and FHLMC have established criteria for conventional loans, including maximum loan amounts, credit score requirements, and documentation standards. These guidelines ensure that the loans they purchase are of a quality that can be pooled together for investors. The other types of loans mentioned have different characteristics. FHA loans are insured by the Federal Housing Administration, VA loans are backed by the Department of Veterans Affairs, and jumbo loans exceed the loan limits established by FNMA and FHLMC and are not eligible for securitization by these entities. As a result, conventional loans are the primary focus of FNMA and FHLMC’s securitization activities, making this answer the most accurate.

FNMA (Fannie Mae) and FHLMC (Freddie Mac) are two government-sponsored enterprises that play a significant role in the U.S. mortgage market by purchasing loans from lenders and securitizing them to create mortgage-backed securities (MBS). The type of loans that FNMA and FHLMC typically securitize are conventional loans, which are those that meet specific underwriting guidelines established by these entities.

Conventional loans are not insured or guaranteed by the federal government, which distinguishes them from loans such as FHA and VA loans. FHMA and FHLMC have established criteria for conventional loans, including maximum loan amounts, credit score requirements, and documentation standards. These guidelines ensure that the loans they purchase are of a quality that can be pooled together for investors.

The other types of loans mentioned have different characteristics. FHA loans are insured by the Federal Housing Administration, VA loans are backed by the Department of Veterans Affairs, and jumbo loans exceed the loan limits established by FNMA and FHLMC and are not eligible for securitization by these entities. As a result, conventional loans are the primary focus of FNMA and FHLMC’s securitization activities, making this answer the most accurate.