Secondary mortgage market

Loans made by mortgage bankers are customarily resold to other lenders and investors in the resale market known as the secondary market.

The purpose of the secondary market is to shift funds from capital surplus areas to capital short areas. One method involves lenders selling loans to each other. Lenders also sell participating interests in blocks of loans to other lenders. Mortgage-backed securities are another tool used to obtain money from the capital market. There are securities backed by FHA and DVA loans and others backed by conventional loans.

When lenders speak about the secondary mortgage market, they are not referring to second mortgages or deeds of trust. They are talking about a market where existing loans are bought and sold.

primary and secondary mortgage market

When a lender makes a loan directly to a borrower, that action takes place in the primary mortgage market. Later, that loan may be sold to a bank, pension fund, or some other investor. The sale of that loan takes place in the secondary market. For example, if a savings bank makes a loan directly to a borrower, it is involved in the primary market. If the loan is subsequently sold to the Federal Home loan Mortgage Corporation, that sale takes place in the secondary market.

The secondary mortgage market consists of private and Institutional lenders, investors, and government agencies that buy and sell mortgages to each other. In the secondary market, discounts are used constantly. Buyers and sellers of mortgages negotiate on the basis of yield. Discounts are used to adjust yields so agreements can be reached and sales made.

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