Sources of Financing: the Fed, the Mortgage Markets & Lending Laws

Types of Mortgages and Sources of Financing is 4% of the Florida sales associate exam. It covers the big picture: where mortgage money comes from, how it is recycled, and which federal rules protect the borrower along the way. The questions are mostly about definitions and deadlines, so a clean mental map pays off.

The money supply and the Federal Reserve

The Federal Reserve affects how much credit is available, and at what price. Know its three classic tools:

• Open market operations: the purchase and sale of securities in the open market by a central bank. The Federal Open Market Committee (FOMC) sets their short-term objective.
• The discount window: the Reserve Banks lend directly to depository institutions. The main program is primary credit, available to institutions in generally sound financial condition.
• Reserve requirements: the Board cut reserve requirement ratios to zero percent effective March 26, 2020, which eliminated reserve requirements for all depository institutions. Exam questions on the classic theory still treat raising reserves as tightening credit. The current fact is that the ratio is zero.

The federal funds rate is the interest rate at which depository institutions lend reserve balances to each other overnight.

Primary vs. secondary mortgage market

The primary market is where loans are made to borrowers: banks, credit unions and mortgage companies. The secondary market is where those loans are bought, so lenders get their money back and can lend again. Freddie Mac describes it exactly that way. It buys single-family and multifamily loans from lenders, and "with the money that lenders receive in return, they can make loans to other qualified borrowers." Freddie Mac does not originate loans or lend directly to borrowers.

Fannie Mae (Federal National Mortgage Association)

Under 12 U.S.C. § 1716, the national mortgage associations exist to establish secondary market facilities for residential mortgages and to provide stability in that market.

Freddie Mac

Chartered by Congress in 1970. It buys loans in the secondary mortgage market and does not lend to borrowers.

Ginnie Mae (Government National Mortgage Association)

Set up in the same section of federal law as Fannie Mae (12 U.S.C. § 1717) as a body corporate without capital stock in the Department of Housing and Urban Development.

Disclosure laws: TILA, TRID and RESPA

Federal disclosure rules give the borrower two key documents with fixed deadlines:

For the Closing Disclosure deadline, a business day means every calendar day except Sundays and legal public holidays.

• The Loan Estimate must be delivered or mailed not later than the third business day after the creditor receives the application. It also must go out no later than the seventh business day before consummation.
• The Closing Disclosure must be received by the consumer no later than three business days before consummation.

The APR is a broader measure than the interest rate. It reflects the rate plus points, mortgage broker fees and other charges, which is why the APR is usually higher than the note rate.

RESPA (the Real Estate Settlement Procedures Act) adds two protections tested often:

• No kickbacks. No one may give or accept any fee, kickback or thing of value for referring settlement-service business on a federally related mortgage loan.
• Escrow cushion. A servicer may require a cushion no greater than one-sixth (1/6) of the estimated total annual escrow payments, which is two months' worth.

Fair lending: ECOA

The Equal Credit Opportunity Act makes it unlawful for any creditor to discriminate against an applicant in any aspect of a credit transaction on these grounds:

• race, color, religion, national origin, sex or marital status;
• age (provided the applicant has the capacity to contract);
• because all or part of the applicant's income comes from any public assistance program.

Note the ECOA bases that the Fair Housing Act does not list: marital status, age and receipt of public assistance income.

Mortgage fees and rate locks

A discount point is 1% of the loan amount and is paid at closing in exchange for a lower rate. A rate lock means the interest rate will not change between the offer and closing, as long as the borrower closes within the specified time frame and nothing changes in the application. Rate locks are typically available for 30, 45 or 60 days.

Where this shows up on the exam

Types of Mortgages and Sources of Financing is 4% of the exam (DBPR candidate booklet, January 2025). Expect a Fed-tool question, a primary-vs-secondary market question (who buys loans), and a TRID deadline or RESPA kickback question.

Sources

North Carolina law as published by the General Assembly and the Office of Administrative Hearings, checked 2026-11-05:

• Federal Reserve Board: Open Market Operations; Discount Window; Reserve Requirements
• Freddie Mac, About
• 12 U.S.C. § 1716
• 12 U.S.C. § 1717
• 12 CFR 1026.19
• 12 CFR 1024.17
• 12 U.S.C. § 2607
• 15 U.S.C. § 1691
• CFPB Ask CFPB: APR, discount points, rate lock
• DBPR, Florida Real Estate Sales Associate Candidate Information Booklet (Jan 2025), content areas