Secondary Mortgage Market
Definition and meaning of Secondary Mortgage Market in real estate.
The secondary mortgage market is a financial market where existing home loans and servicing rights are bought and sold among lenders, investment banks, and institutional investors. This market allows primary lenders to sell their active mortgages to replenish their cash reserves and write new loans.
In more detail
When a home buyer gets a mortgage, the transaction occurs in the primary market. To avoid running out of money to lend, the bank packages that mortgage with other loans into mortgage-backed securities, which are sold on the secondary market. Government-sponsored enterprises like Fannie Mae and Freddie Mac are the primary buyers, purchasing loans that meet strict lending guidelines.
By purchasing these loans, these institutions ensure a continuous flow of liquidity to banks, which helps keep interest rates stable and mortgages accessible to borrowers. Borrowers may notice their loan is sold shortly after closing, which changes where they send payments but does not alter the loan terms.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Major players | Fannie Mae, Freddie Mac, Ginnie Mae, investment banks |
| Primary benefit | Provides liquidity to banks so they can continue lending |
| Watch out for | Changes in your mortgage servicer after your loan is sold |
A local bank originates a home loan for a buyer and quickly sells it on the secondary mortgage market to Fannie Mae, allowing the bank to immediately lend that money to another buyer.
Frequently asked questions
Why do banks sell mortgages on the secondary market?
Lenders sell mortgages to free up capital and manage risk, allowing them to make new loans to other borrowers rather than waiting thirty years to collect payments.
Does it affect me if my mortgage is sold on the secondary market?
No, your interest rate, monthly payment, and loan terms remain exactly the same. The only difference is that you will make your payments to a new loan servicer.