Primary Versus Secondary Mortgage Market
June 30, 2020
The Primary Mortgage Market
The primary mortgage market is where loans are actually made between the lender and the borrower. Several lenders can be involved in the primary mortgage market. They are as follows: Number one are savings and loans which typically make residential home loans. Number two would be commercial banks. Commercial banks can make all types of loans, but they tend to specialize in making business loans. And number three would be mortgage bankers. Mortgage bankers typically lend other people's money, but it's a good place to possibly obtain a home loan, something that borrowers should check out. Let's talk about who a mortgage broker is. The term broker literally means that we're bringing two different parties together. So, a mortgage broker is simply an individual who finds someone who wants to loan money and matches them up with someone who wants to borrow money. The mortgage broker gets paid a fee for their service. The mortgage broker is not actually a lender, but they have access to lenders with various types of financing available. So, a mortgage broker has a wide range of mortgage options available to show potential borrowers.
The Secondary Mortgage Market
The secondary mortgage market is where loans that have already been made are then resold. There are three organizations in the secondary mortgage market. The first one is called the Federal National Mortgage Association, FNMA or Fannie Mae. Fannie Mae is the largest organization in the secondary market, and Fannie Mae buys all types of notes from local lenders. Fannie Mae is actually a private company for profit, but it is government sponsored and is under the supervision of the government, so they're kind of quasi-governmental, if you will. A second organization in the secondary mortgage market is the Government National Mortgage Association, GNMA or Ginnie Mae. This is strictly a government corporation. Since Ginnie Mae is a government corporation, they tend to buy government loans such as FHA and VA loans. The third organization is the Federal Home Loan Mortgage Corporation, or who we call Freddie Mac. Freddie Mac is also a private company like Fannie Mae. Freddie Mac tends to specialize in buying conventional notes from savings and loans.
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