Question 1: What is the secondary mortgage market? List three reasons why it is
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What is the secondary mortgage market? List three reasons why it is important. Please elaborate by expressing your thoughts about your findings in at least 3 – 4 sentences.
According to Investopedia, “The secondary mortgage market is a marketplace where home loans and servicing rights are bought and sold between lenders and investors. A large percentage of newly originated mortgages are sold by the lenders who issue them into this secondary market, where they are packaged into mortgage-backed securities and sold to investors such as pension funds, insurance companies, and hedge funds (Investopedia).” According to the author from Investopedia, the secondary market is the market behind the primary market where your loan liability (notes receivable from lender’s perspective) is traded as sellable assets to other lenders or investors.
An example would be that home buyer David acquired a property using mortgage with Bank of America with a 20 year fixed rate mortgage. Bank of America sold this “notes receivable” to a third party “Citizens Bank”. Now, Citizens Bank has your notes receivable despite that you did not engage with them initially for the mortgage. It is similar to sell receivables to other companies for a lower percentage of cash in return.
The reasons they are important are:
It can give the banks options in times where interest rates are raising and they want to sell the mortgage off for a better interest rate mortgage.
It creates additional trading and transactions that increases the competitiveness of the loan market.
In times of lowering interest rates, the bank can also sell the mortgage for a gain and have additional capital.
JULIA KAGAN AND TROY SEGAL (March 16th, 2020). Secondary Mortgage Market t. Investopedia. Retrieved from Investopedia: https://www.investopedia.com/terms/s/secondary_mortgage_market.asp
EXPLORING THE WEB
Please visit National Mortgage News at http://www.nationalmortgagenews.com/technology (Links to an external site.). Explore the site. Bring back an article or something that interest you and share it with the class.
The National Mortgage News is a site for the mortgage industry to share ideas and news. It has the Leaders forum, for leaders in the mortgage industry to bring innovative and senior voices to share leadership experiences on most pressing topics. It has the Origination section that shares up to date news in the industry, including articles, projects and other related information. It has the Servicing section, with opinions and articles in the mortgage service section. It also offers information on compliances and regulations, the secondary mortgage market, technology and events.
One of the articles I find interesting is entitled “High Demand, Limited Supply Continue to Push Home Prices Upward” by Brad Finkelstein in the Origination section of the website. The article talks about the home prices because the supply and demand. It states that the appreciation rate of American homes was at 7.3% in October of 2020. The main reasons for this increase of home prices is that the suppliers are shorter than demand, especially during the pandemic, most home owners will hold the home for sale which causes a shortage of supply. The project for the home price is that it is on the rise, with only a few, 5 to 6, places where there is a projected decline of home price.
The National Mortgage News. Retrieved from http://www.nationalmortgagenews.com/technology (Links to an external site.)
High Demand, Limited Supply Continue to Push Home Prices Upward. Retrieved from https://www.nationalmortgagenews.com/news/home-prices-rose-7-3-in-october-corelogic-reports#:~:text=High%20demand%2C%20limited%20supply%20continue%20to%20push%20home%20prices%20upward&text=Home%20price%20growth%20has%20continued,April%202014%2C%20according%20to%20CoreLogic.&text=Still%2C%20CoreLogic%20predicted%20that%20over,prices%20will%20grow%20by%201.9%25 (Links to an external site.).