Question

Explain how the Mortgage Secondary Market (Securitization) Works. Make sure to include the major plays and size of the secondary market, the pros and cons, Mortgage characteristics, and 3 types of Mortgage Backed Securities. Should we continue to have Fannie and Freddie? What should the role of our government be in securing them? Why?

Answer 1

Mortgage secondary market is a market where Mortgage loan and servicing rights are transacted and bought and sold by various entities.there are large number of market participants who are actively engaged in the secondary mortgage market and they are responsible for the generation of a large amount of liquidity into the overall economy.

mortgage secondary market is a comparatively larger market and the benefits of having such markets is that it will provide a large number of liquidity to the entire economy and the problem with this market will be that these liquidity can be highly dangerous as which can be seen in subprime mortgage lending crisis.

mortgage securities can be classified as pass through securities and collateralized mortgage securities and collateralized debt obligation.

yes, we should be continuing to have fannie and Freddie and there is the role of government in securing the loans to various home buyers because government is a regulatory authority and it can help those who genuinely want loan through assignment of loan to value ratio and appropriate collateral.