Question

d) Compare and contrast between the primary and secondary mortgage market.

e) Explain the process of borrower analysis conducted by the lenders while you apply for a loan.

Answer 1

Primary mortgage market refers to the market where a borrower obtains a mortgage loan from a primamry lender. the types of primary lenders are Bans, Credit unions, mortgage brokers to name a few.

d) Secondary mortage market refers to the market where home loans and servicings rights are bought and sold among the investors and lenders.

The parimary mortage market is the place where mortgage loans are originated. Once, the loan is accepted, it can be sold to another financial institution in the secondary market. There are many investors and companies that are associated with both the markets.

e) the process of borrower analysis conducted by the lenders while you apply for a loan.

The lenders look for five C's of credit i.e capacity, collateral, capital, character and coditions.

capacity- this mainly deals with the capacity of the borrower to repay the loan.

Collateral- the lender looks into the collateral offered by the borrower so that in case of non-repayment, the collateral should be able to recover the loan.

capital- it refers to the amount money the borrower has to work with.If the borrower is not well capitalised, the lender may not approve the loan.

Character- the lender looks into the credit history, credit repayment capacity, references etc, to ananlyse the credit potential of the borrower.

conditions- these include the analysing the economic environment of the borrwoer .

all these ananlysis are very crucial for analysing the repaying capacity of the borrower. On the basis of these five C's thelender may agree to offer the loan.