Secondary Mortgage Market
Definition
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
Example
A local bank originates a $300,000 conventional mortgage. The bank then sells the loan to Fannie Mae on the secondary market, receiving $300,000 in cash. The bank uses this cash to make a new mortgage loan to another borrower. The original borrower's payment now goes to investors who purchased the mortgage-backed security.
Exam Tip
Know the three main players: Fannie Mae (buys conventional), Freddie Mac (buys conventional), Ginnie Mae (guarantees FHA/VA). Remember that the secondary market provides LIQUIDITY—lenders sell loans to get cash for new loans. Ginnie Mae does NOT buy loans—it guarantees them. This is a common exam trick.
Related Financing Terms
Deed (in foreclosure context)
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Trustee Sale
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Foreclosure
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
Conventional Loan
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
FHA Loan
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
VA Loan
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
Frequently Asked Questions
Test Your Financing Knowledge
Practice with exam-style questions to make sure you can apply Secondary Mortgage Market and other financing concepts.