Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages to investors like Fannie Mae or Freddie Mac in order to obtain more funds for originating more new loans. Secondary mortgage market provides liquidity for the lenders.
Government-sponsored entities Fannie Mae and Freddie Mac form a market of packaged conforming home loans. Lenders who originate loans in the primary mortgage market may either hold the loans in their portfolios or sell them in the secondary mortgage market. By selling their loans in the secondary market, lenders are able to obtain additional funds with which to make more loans to home buyers.
The secondary mortgage market helps accomplish the following important housing objectives:
- it addresses imbalances of mortgage credit among regions of the United States by making funds available to capital-deficient areas of the country to finance new mortgage originations;
- it allows lenders to originate mortgages for sale rather than for portfolio investment;
- it standardizes mortgage loans, thereby attracting investors who traditionally have not invested in the primary market, further strengthening this market.