Certified Residential Appraiser Practice Exam

In what period did the secondary market become prominent in mortgage lending?

1. Early 1980s

2. Mid 1970s

3. Late 1970s

4. Early 1990s

The correct answer is: Late 1970s

The late 1970s marked a significant period for the development of the secondary mortgage market. During this time, mechanisms for buying and selling mortgages in a secondary market began to gain traction, allowing lenders to sell mortgages to investors. This innovation helped to provide a stable source of capital for mortgage lending, enhancing the availability of funds in the residential mortgage market. The formation of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, played a pivotal role in this process, as they created standardized mortgage products and provided guarantees for mortgage-backed securities, thus increasing investor confidence and liquidity in the market. This innovative shift in the late 1970s laid the groundwork for the more widespread practices and instruments that would become mainstream in the 1980s and beyond, allowing lenders to free up capital and offer more loans, which contributed to the housing boom. The timing of these developments is critical, as they transformed how mortgage financing was structured and created a more robust and interconnected system involving many stakeholders—from lenders and servicers to secondary investors and borrowers.