Certified Pennsylvania Evaluator Practice Exam

What is the primary purpose of the Financial Institutions Reform, Recovery, and Enforcement Act?

1. To increase government funding for housing

2. To regulate mortgage processes and enhance financial institutions

3. To provide better insurance for property owners

4. To promote social equity in housing

The correct answer is: To regulate mortgage processes and enhance financial institutions

The primary purpose of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) is to regulate mortgage processes and enhance financial institutions. This legislation was enacted in response to the savings and loan crisis of the 1980s and early 1990s, aiming to restore public confidence in the financial system. FIRREA established more stringent regulations for savings and loan associations, imposed higher capital requirements, and created the Resolution Trust Corporation to manage and resolve the assets of failed thrifts. By enhancing oversight and regulation of financial institutions, the act sought to ensure the stability and integrity of the banking system, thereby improving the mortgage lending process. This focus on regulatory measures directly addresses vulnerabilities in the financial system that could lead to failures and economic downturns, which underscores the importance of financial institution regulation in protecting consumers and the economy.