A savings bank sold a package of 100 mortgages to the Federal Home Loan Mortgage Corporation. This is considered a

Rationale

This is considered a secondary market activity.

The sale of a package of mortgages to the Federal Home Loan Mortgage Corporation (Freddie Mac) is an example of secondary market activity, where existing loans are bought and sold among investors. This process helps to provide liquidity to the mortgage market and allows lenders to free up capital for new loans.

A (second mortgage package) YOUR ANSWER

A second mortgage package refers specifically to loans taken out against a property that already has a primary mortgage. In this context, the package being sold to Freddie Mac is not limited to second mortgages but instead consists of various primary mortgages, making this choice incorrect.

B (primary mortgage transaction) YOUR ANSWER

A primary mortgage transaction involves the initial loan agreement made between a borrower and a lender for purchasing a home. The sale of a package of mortgages to Freddie Mac does not represent a primary transaction but rather a resale of existing mortgages, thus disqualifying this option.

C (secondary market activity) CORRECT

The correct answer, secondary market activity, refers to the buying and selling of existing mortgage loans. By selling the mortgage package to Freddie Mac, the savings bank is participating in the secondary market, allowing it to manage risk and maintain liquidity.

D (tandem plan arrangement) YOUR ANSWER

A tandem plan arrangement is not a recognized term in mortgage finance and does not apply to the sale of mortgage packages. This term does not relate to the transaction described in the question, making it an incorrect choice.

Conclusion

The transaction in question is classified as secondary market activity, highlighting the process of trading existing mortgages to enhance liquidity in the financial system. The other options either mischaracterize the type of mortgages involved, refer to initial lending processes, or use terms that do not apply to the context, reinforcing that only secondary market activity accurately describes the nature of the transaction.

A savings bank sold a package of 100 mortgages to the Federal Home Loan Mortgage Corporation. This is considered a

This is considered a secondary market activity.

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