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Understanding The Secondary Mortgage Market

By Elizabeth R. Elstien

As a new homeowner, you may have received a letter soon after closing on the sale that your mortgage was being transferred or sold to another investor? Welcome to the secondary mortgage market where primary lenders liquidate their mortgage assets. Understand what this market is and how it effects a new homeowner.

What Is A Secondary Mortgage Market?

Primary lenders (such as mortgage bankers, banks and savings and loans) sell their mortgage loans to secondary mortgage investors. So, the primary lender has sent the purchase price funds at sale closing in order for the buyer to pay the seller for the home. The buyer has a loan from the primary lender for any amount not covered by down payment and closing funds (plus interest, of course).

Why Is This Secondary Market Needed?

Mortgages are long term. Giving out all these mortgage loans would eventually leave a primary lender with no funds. In order to allow the primary lender to continue to fund mortgage loans, the loan is sold to a secondary market investor so the primary lender always has cash to fund additional mortgage loans.

Who Are Secondary Mortgage Investors?

These investors include government-backed lenders Fannie Mae, Freddie Mac and Ginnie Mae.

Will Homeowner Mortgage Payments Change?

No. The mortgage loan remains the same as it is a contractual obligation. Therefore, homeowner mortgage payments do not change just because the loan was sold to a mortgage investor.

Where Does The Homeowner Send Payments?

A letter from the secondary mortgage loan investor will state exactly where to send payments and when to start sending to the new holder of the loan. As there is always some degree of disorganization, it is best to contact the secondary mortgage investor after sending the payment to make sure it was received and applied to the correct account.

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About The Author

Elizabeth R. Elstien has worked in real estate for over 15 years as a real estate...

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