The secondary mortgage market is a vital component of the financial system, where originated loans are bought and sold to maintain liquidity for lenders, enabling them to issue more loans and support economic growth. This market is regulated by the Federal Housing Finance Agency (FHFA) and involves different types of loans, including conforming and non-conforming loans, with specific guidelines such as the requirement for private mortgage insurance (PMI) for high loan-to-value ratios.
Technological advancements, like automated underwriting systems, have enhanced efficiency in processing these loans. Mortgage-backed securities, which are pools of mortgages used as collateral, provide additional investment opportunities in real estate.
Key Players:
- Fannie Mae:
• Largest entity in the secondary mortgage market.
• Buys and sells various mortgage loans.
• Operates as a government-sponsored enterprise (GSE) with benefits like a credit line with the U.S. Treasury.
• Expanded authority since the Emergency Home Finance Act of 1970 to include conventional loans.
• Requires PMI for loans with a loan-to-value ratio above 80%. - Freddie Mac:
• Supports the secondary mortgage market for thrifts and the federal home loan bank system.
• Provides an electronic underwriting system called Loan Prospector.
• Similar in function to Fannie Mae but operates independently. - Ginnie Mae:
• Does not buy or sell loans or issue mortgage-backed securities.
• Guarantees timely payments to investors in mortgage-backed securities.
• Ensures stability and confidence in the mortgage-backed securities market.
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Shirin Rezania Ramos | 858.345.0685 | www.shirinramos.com | Compass, DRE 0203379
