Many of you may not be aware of secondary mortgage market. The term looks complex but is easy to understand. It is a market where you can buy and sell mortgage loans and servicing rights among the investors and originators. You can feel that market is too large and can make huge money out of it. Owners sell the mortgages which are new to the secondary market. These are sold to investors as funds, insurance.
Make Money Through Mortgages
Mortgage loans are very famous in real estate market. These loans are used to finance a home. Then these loans are bought from lenders which act as secondary mortgages. The most important question that strikes our mind is that these mortgages make money? So let me start from the basic how a mortgage market works? We have banks and lenders which generate mortgage loans. These loans are sold to secondary lenders. There are many commercial banks which can fulfill the role of secondary lenders. Thus primary lenders can generate their profit from the interest that they get from the loans. Secondary lenders can make huge revenue for the group of loans put together.
Role Of Secondary Lenders
The next question that comes in our mind is that who can justify the role of secondary lenders? We have people working in the public and private sectors who can fulfill this role. There are many organizations such as Fannie Mae which buys mortgages in large number. They again sell them as investment products. We have many other secondary investors such as pension funds, insurance companies. Thus secondary lenders use primary lenders loans in finance.
Mortgage Backed Securities
Do you know about mortgage backed securities? It is an investment which makes cash and can be sold by primary lenders in the market. These generate huge principal and interest which constitute mortgage backed securities. It is possible that secondary lenders may claim for it. There are many private investors who buy mortgage backed securities from the secondary lenders. It is seen that some secondary lenders purchase huge number of mortgage loans which put them under huge risks. These incidents became famous within the market. As a result private mortgage insurance market was formed to deal with losses. With the introduction of this, it gave some protection.
What is the impact on mortgages when one sells to another? Whenever there is a change of service, borrowers are given notification in advance. It can be one month or two. When a mortgage is sold to a new person, a letter will be sent to the old owner informing about the date transfer. The address of the new lender is mentioned within the letter. Most important questions that we face today is that is the time has come to adopt secondary mortgage market? Certainly it is a difficult question to answer. The secondary mortgage market is a perfect medium for financial institutions to sell mortgages to the investors. Each of the institutions has their limits to which they can lend. These are mentioned in their policy and guidelines. It is done so that any dispute can be solved easily.