Borrowers conduct mortgage business with lenders in the primary market to obtain credit for the purchase or refinance of real estate.
The secondary market is a term used to describe the sale and trading of mortgages and servicing rights to assist with the flow of capital. Secondary marketing activities:
· Provide liquidity to primary market mortgage lenders
· Provide a source of capital to areas in need of housing finance everywhere in the United States
· Allows competition for mortgage money keeping interest rates low
· Standardizes underwriting guidelines and credit quality nationally
The federal government created the secondary market with the formation of Ginnie Mae , Fannie Mae , and Freddie Mac . Mortgage loans are often packaged and securitized into Mortgage Backed Securities (MBS), which are sold to fixed income investors looking for an income stream.
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