Understanding the Secondary Mortgage Market

Often times it is unsettling when you as the new homeowner have been notified by your bank that your mortgage has just been sold to another company. This is actually a very common business transaction that does not affect your loan. You need to take a deep breath and realize it’s business as usual. The bank financial institution has the legal right to sell mortgages without the homeowner’s consent. It does not affect your mortgage in any way.

This mortgage selling process actually started when you as the new homeowner applied for a mortgage from your bank, mortgage company or credit union. The loan is call the primary mortgage lender. The lender figured out if you were a good risk and supplied you with a loan if you checked out okay. You promised to pay the money back under particular pre-defined conditions. Once the loan was closed and recorded, the primary lender may either decide to hold on to the mortgage or sell it on the secondary market.

The secondary market actually creates a national market for reselling residential mortgages. That is their most important contribution thus allowing for loans to be made across all states and areas. Due to this secondary market, all states have access to pools of capital managed by insurance companies, pension funds and many other institutional buyers of mortgage-backed bonds. This way home buyers are able to obtain mortgage financing, with the secondary market sales making it so the lending institutions don’t run out of money and stop making new loans.

The scondary market started maturing in the late 1960s, and allowed for secondary markets agencies to have buying programs for adjustable rate mortgages, fixed rate and biweekly mortgages. This was the beginning of the national mortgage market where loan originators, doing business multistate or having nationwide mortgage origination offices, were then able to make loans at great competitive rates and then sell the loans to investors. Additionally, in the 1980s, non-government agencies became active. These organizations bought loans from correspondents and were very profitable. Maggie Mae was created then by Mortgage Guaranty Insurance Corp, which was a mortgage insurance company. This mortgage insurance company is referred to as HOMAC (Home Mortgage Access Corp.), organized by the National Home Building Association.

The secondary market companies buy primary mortgages, package them into securities and then sell them to investors. This packaging and selling of loans is great for the homeowner because it keeps interest rates lower. After the homeowner’s loan is sold, the new lender is the one who retains all the terms and conditions of the loan. The only difference will be the address on the envelope that the payment will be paid to. The homeowner should be appreciative of these companies, rather than fearful that the new lender is out to get them.

The homeowner will be notified by letter that the current mortgage company has sold their home loan. Soon after, the company that bought the homeowner’s loan will send another letter explaining who they are and inform the homeowner that the terms and conditions of the loan won’t change. Instructions will be explained how to make payments to the new company and the phone number where they can be reached.

Financial institutions are buying and selling mortgages every day, which actually helps the housing market by keeping interest rates down. The lenders are required to notify the homeowner of the loan sale transaction with the only change being where the payment is mailed to. It is a normal situation that takes place, the homeowner just needs to sit back and observe. These secondary mortgage markets are here to serve the homeowner.

Lori English is a real estate broker and internet business woman. As a web expert, she writes about LA homes for sale, as well as for other websites. With her experience, certificates, and degrees, she understands real estate, the internet business, and how to invest in properties.