What is the Secondary mortgage market’
Secondary mortgage market-a market where mortgage loans and servicing rights are bought and sold between mortgage loans, mortgage aggregators (securitizers) and investors. The secondary mortgage market is extremely large and liquid.
Breaking down ‘the secondary mortgage market
The secondary mortgage market where mortgage loans and servicing rights are bought and sold between lenders and investors. The secondary mortgage market helps to make credit less available to all borrowers across geographical locations. A large percentage of newly issued mortgage loans are not sold by their owners in the secondary market, where they are packaged into mortgage securities and sold to investors such as pension funds, insurance companies and hedge funds.
When a person takes a mortgage, a loan underwritten, funded and serviced by the Bank. Since the Bank uses its own funds a loan, they eventually ran out of money on the loan, so they will sell the loan to the secondary market to replenish their free money to make more mortgage loans. The loan is often sold to large aggregators such as Fannie Mae. The aggregator then distributes thousands of such loans into mortgage-backed securities (MBS).
Before the secondary market was created only large banks extensive funds to provide funds for the term of the loan, typically 15 to 30 years. Because of this, potential buyers had a more difficult time finding mortgage lenders. Because there is less competition between mortgage lenders, they were able to charge a higher interest rate. Act of 1968 Charter solved this problem by creating Fannie Mae and Freddie Mac two years later. These government sponsored enterprises were able to buy Bank mortgages and resell them to other investors. Instead sell the credits separately, they were combined into mortgage-backed securities, so their value is ensured or supported the cost of the package of mortgage loans.
Competition and risk
Competition and risk are always part of the game, when private investors bring mortgage loans in the secondary mortgage market, as private investors begin to drive mortgage rates and fees. This means that if you have a low credit score and strive to loan, you may be perceived as risky, so that they can charge higher rates and fees.
After the mortgage crisis, private investors are not willing to risk their capital on mortgage-backed securities with a low level. Then the Federal government must step in to fill the void in the secondary mortgage market. It stopped the growth to where hardly anyone could afford their own home.