Certified Residential Appraiser Practice Exam

What significant impact did the late 1970s have on the mortgage lending industry?

1. Introduction of fixed-rate mortgages

2. Emergence of the secondary market

3. Establishment of Fannie Mae

4. Creation of the Federal Housing Administration

The correct answer is: Emergence of the secondary market

The late 1970s marked a pivotal period in the mortgage lending industry primarily due to the emergence of the secondary market. This development transformed how mortgages were originated and financed, providing lenders with the ability to sell mortgages to investors, rather than holding them on their books for the entire life of the loan. This shift allowed for an increased flow of capital into the mortgage market, thereby providing lenders with more funds to offer additional loans. The establishment of the secondary market played a crucial role in stabilizing the mortgage industry and making housing more accessible to consumers, as it encouraged competition and led to more favorable terms for borrowers. By allowing for the bundling and selling of mortgage loans as securities, the secondary market contributed to a wider distribution of risk and enhanced the liquidity of mortgage-backed securities. This was particularly significant during a time of economic fluctuations and rising interest rates, as it provided borrowers with options and adaptability in the lending process. In contrast, while fixed-rate mortgages, Fannie Mae, and the Federal Housing Administration were important developments in the mortgage industry, their significant impacts occurred earlier or were built upon the foundation that the emerging secondary market provided during the late 1970s.