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Simple English definitions for legal terms
secondary mortgage market
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A quick definition of secondary mortgage market:
Secondary Mortgage Market: This is a national market where existing mortgages are bought and sold, usually in large groups. It's different from the primary mortgage market, where new mortgages are created. The secondary mortgage market provides a way for lenders to sell their existing mortgages to investors, which helps them get more money to lend to new borrowers.
A more thorough explanation:
The secondary mortgage market refers to the national market where existing mortgages are bought and sold, usually in packages. This market is different from the primary mortgage market, which is where new mortgages are originated.
One example of the secondary mortgage market is when a bank sells a bundle of mortgages to an investor. The bank receives cash for the mortgages, which it can then use to make new loans. The investor, in turn, receives the right to collect the payments on the mortgages.
Another example is when a homeowner refinances their mortgage. The original mortgage is paid off, and a new mortgage is created. The original mortgage is then sold in the secondary market to investors who are looking for a steady stream of income from mortgage payments.
These examples illustrate how the secondary mortgage market provides liquidity to the mortgage industry. By buying and selling existing mortgages, investors can earn a return on their investment, while banks can free up capital to make new loans.