The Secondary Mortgage Market In Totality
by Maryann
The borrowers mainly are concerned with only
getting their loans approved. They don’t really think as to what happens to
these loans or how the lenders can afford to lend you so much of money. Here we
attempt a detailed study of these factors with reference to the secondary
mortgage market.
The mortgage market works in a cycle. There are basically two markets
Primary mortgage market
Secondary mortgage market
The primary mortgage market involves two broad categories
The mortgage originators: this comprises depository institutions like commercial
banks and thrifts and non-depository institutions like mortgage banks and
brokers.
The Secondary market conduits: this comprises the three GSEs-Freddie Mac, Fannie
Mae and Ginnie Mae , and other private investment banks
This is where the loan portfolios are held and then sold to the secondary
market. In simple words the loans that you take are accumulated with details and
they are sold to the big wigs. The next question would automatically be:
What happens in the secondary market and why are the loans sold in the first
place?
The loans are sold in the secondary mortgage market to investors. This is done
in three ways:
The loans are sold individually-this happens especially with large loans
The loans of the same type, meeting the same underwriting standards are pooled
together into Mortgage backed securities (MBS).
Bonds are sold which are backed by the loans.
The monthly payment that you make to your lender is actually transferred to the
GSEs and they pass it on to the investor market. But the last transaction
involves a cut; the guarantee fee is deducted and allowed into the market.
At Wall Street investors buy these loans either whole or packaged and
accordingly the loans are financed. These transaction costs need to be borne by
the borrowers. But the benefits that the secondary market reaps offset these.
Benefits of the secondary mortgage market
Reduces the interest rate
Maintains liquidity
Restructures portfolios
Distributes risk
Increases the homeownership
More home mortgages are made available
Provides financial stability to lending institutions
Fosters economic growth
Provides more employment opportunities
Attracts foreign capital markets to invest
The mortgage market earlier allowed only conventional loans to be sold but today
the scenario is changing. Even sub-prime loans are gaining entry and they are
helping the loan originators to fund more such loans .This cycle is essential to
the very sustenance of the mortgage industry.
Thus it all depends on the investors and how much they buy and what price which
defines the well being of the mortgage field.
For more knowledge regarding mortgage markets log onto:
http://www.mortgagefit.com/secondary-market.html
http://www.mortgagefit.com/primary-market.html
About The Author
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maryann@mortgagefit.com
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