Question

Give a brief explanation of the secondary mortgage markets.

Answer 1

A secondary mortgage market where the loans and services are bought and sold , between the mortgage broker or banker and the investor . it is where home loans and servicing rights are bought and sold. It is a large market. It makes loan available to large geographical are.

A huge number of loans are sell by the originators in the secondary market. To understand clearly, Suppose a person takes a home loan from a bank. The bank has funded their own money for the loan and when they run out of money to loan , they sell this loan in the secondary market to replenish the money to make more home loans. the banks sell their mortgages to an institutional investor like large pension funds , insurance companies, hedge funds, etc. And so the bank arranges the money for loaning further.

Before the secondary mortgage market, only the big banks were able to provide loans for longer period loans and there was less competition and thus very high interest rates. Due to this market, the interest rates has declined and more banks were able to lend the money at a larger scale.