Primary and Secondary Markets Overview

A national market where mortgage loans are bought and sold, allowing for a wider pool of funding for mortgages and promoting homeownership.

Mortgage loans can be traded like any other investment, with their value determined by the current interest rates and risk associated with them.

Financial instruments backed by a pool of mortgages, providing investors with monthly payments of principal and interest as the loans are repaid.

The secondary market plays a crucial role in the national mortgage market by providing liquidity and moderating the impact of local real estate cycles.

Government-sponsored entities like Fannie Mae and Freddie Mac purchase mortgages from primary lenders and package them into securities for sale to investors.

The secondary market stabilizes the primary market, reducing the impact of local real estate booms and slumps.

The secondary market is crucial for promoting homeownership by ensuring a continuous flow of funds for mortgage lending.

A mortgage-backed security (MBS) is a financial instrument backed by a pool of mortgages, providing investors with regular payments of principal and interest as the mortgages are repaid.

Government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac play a significant role by purchasing mortgages from lenders and packaging them into MBSs for sale to investors.

Ginnie Mae guarantees securities backed by FHA and VA loans, but it doesn't purchase loans or sell MBSs. It plays a role in the secondary mortgage market by providing guarantees for these types of loans.

Freddie Mac was created to help savings and loans by buying conventional loans. It is a GSE that facilitates the flow of capital into the mortgage market.

Both Fannie Mae and Freddie Mac are limited to residential mortgages and mortgage-backed securities. They play a vital role in the secondary mortgage market by providing liquidity and stability.

The first mortgage-backed securities program was started by Ginnie Mae in 1970. Fannie Mae and Freddie Mac followed shortly after, issuing MBS's backed by conventional mortgages.

GSEs previously only purchased prime loans, but they began to loosen their underwriting standards and purchase A-minus loans. This move aimed to compete in the market and reach affordable housing goals.

The process of transferring mortgage loans from primary lenders to secondary market investors.

Government-sponsored entities that purchase mortgages from primary lenders, package them into securities, and sell them to investors. They play a key role in stabilizing the mortgage market.

A decrease in the supply of funds available for mortgage lending, possibly due to a shift in investor preference. This can lead to higher interest rates and more difficulty for borrowers.

A type of mortgage where the interest rate is adjusted periodically based on a specific index, leading to potential fluctuations in monthly payments.

The recurring pattern of periods of high real estate activity followed by slumps or decline in activity, influenced by factors like interest rates and economic conditions.

A loan that a lender holds onto instead of selling it on the secondary market.

A government-owned corporation that guarantees mortgage-backed securities, primarily based on FHA and VA loans.

Fannie Mae and Freddie Mac act as major players in this market, buying mortgages from lenders and repackaging them into securities.

They are more liquid, meaning they can be easily bought and sold. They also come in smaller denominations, making them accessible to a wider range of investors.

They placed both Fannie Mae and Freddie Mac under government conservatorship to stabilize the market after the mortgage crisis.