In many cases, the initial creditor that funds your home mortgage and receives the monthly obligations sells your promissory note to an investor in the secondary mortgage marketplace. The creditor continues as a servicer, without changing the conditions of your arrangement. Private and public investors buy mortgage notes developing a secondary mortgage market. The federal government dominates the U.S. secondary mortgage market throughout the associations Freddie Mac and Fannie Mae, accounting for 20 percent of all mortgage funds exchanged annually.
Misconceptions
The secondary mortgage market is confused with funding. Where the secondary mortgage market entails investor earnings and purchase of promissory notes, secondary funding is a second or junior lien put on an already mortgaged property. Financing is also referred to.
History
The Federal National Mortgage Association, better known as Fannie Mae or simply FNMA, was created by the U.S. Congress with President Franklin D. Roosevelt in 1938 through the Great Depression to combat a housing catastrophe. FNMA was split into a shareholder-owned corporation and an organization known as the Government National Mortgage Association in 1968. The authorities established Freddie Mac in 1970 to handle the growth of Fannie Mae and stop a monopoly in the secondary mortgage marketplace.
Function
Lenders sell shareholders a pool or even some group of mortgages in the kind of mortgage-backed securities that represent an undivided interest in its respective loans. The holder of the securities is entitled to the interest and principal payments. The government uses funds from overseas authorities, pensions and mutual funds to finance the purchase of main mortgages. Tasks of Fannie Mae and Freddie Mac are audited by the U.S. Office of Federal Housing Enterprise Oversight.
Benefits
The secondary mortgage market arouses the housing market in general. When a mortgage creditor sells interest in a mortgage, extra funds are free which can be loaned to more borrowers. The secondary mortgage market helps facilitate homeownership. Investors benefit through a diverse investment portfolio also by regularly earning money through interest charged on the loans.
Considerations
Investors in the secondary mortgage marketplace have loan standards set up to discriminate which kinds of loans are acquired. Fannie Mae and Freddie Mac have a maximum loan cap that changes annually and can be adjusted for regions with lower property values.