Hawaii Pre-Licensing National Practice Exam

What is a correct statement about the Federal National Mortgage Association (FNMA)?

1. It originates mortgages for first-time homebuyers

2. It purchases certain mortgages originated by lending institutions

3. It provides loans directly to consumers

4. It only buys loans from government lenders

The correct answer is: It purchases certain mortgages originated by lending institutions

The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, primarily functions as a government-sponsored enterprise that buys and guarantees mortgages originated by lending institutions. By purchasing these loans, FNMA provides liquidity to the mortgage market, enabling lenders to reinvest the proceeds into mortgage lending. This process helps to stabilize the housing market and make home financing more accessible to consumers. Unlike the option that suggests FNMA originates mortgages, its role is not to create loans but rather to enhance the flow of funds in the mortgage industry by acquiring existing loans from lenders. This distinction is essential, as it positions Fannie Mae as a significant player in the secondary mortgage market. The statement about FNMA providing loans directly to consumers is inaccurate, as FNMA does not serve as a lender to the public; instead, it interacts with financial institutions. Additionally, while FNMA does purchase government-insured loans, it does not limit its operations exclusively to loans from government lenders, as it also buys from a variety of private lending sources. Therefore, the correct understanding of FNMA's role is captured accurately in the selected statement that describes its activity of purchasing certain mortgages from lending institutions.