Future Business Leaders of America (FBLA) Securities and Investments Practice Test

Which company operates similarly to FNMA by purchasing mortgages?

1. CMO

2. FHLMC

3. GNMA

4. Bankers Acceptance

The correct answer is: FHLMC

B is the correct choice because FHLMC, or the Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac), functions similarly to FNMA, which is the Federal National Mortgage Association (commonly known as Fannie Mae). Both entities are government-sponsored enterprises that buy mortgages from lenders to enhance the liquidity and stability of the mortgage market. This purchasing activity helps to facilitate homebuying by enabling the flow of capital to mortgages, allowing lenders to extend more loans. FHLMC and FNMA actively securitize the mortgages into mortgage-backed securities, making housing finance more accessible. They serve as a secondary market for mortgages, ensuring that there is sufficient liquidity for primary lenders, which is crucial for maintaining a healthy housing market. In contrast, the other options do not operate in the same manner as FNMA. For instance, CMOs (Collateralized Mortgage Obligations) are securities backed by mortgage loans, but they do not purchase mortgages themselves. GNMA (Government National Mortgage Association, or Ginnie Mae) guarantees mortgage-backed securities but does not purchase mortgages like FNMA and FHLMC. Lastly, Bankers Acceptance is a financial instrument used primarily in international trade, and it doesn't relate to mortgage purchasing policies or operations. Thus, FHLMC