How does the secondary mortgage market work?

The secondary mortgage market doesn’t involve borrowers at all. Instead, it’s where lenders sell loans they’ve originated to investors. After originating a loan, a lender often sells it in the secondary mortgage market, though the lender may retain the servicing rights.

Why is the secondary market important?

Because it allows lenders to slice up their mortgages, the secondary market also enables financial firms to specialize in various areas of the market. For example, a bank may originate a loan but sell it in the secondary market while retaining the right to service the mortgage.

Why should you buy a secondary mortgage?

The secondary mortgage market exists to increase lending liquidity, and also to provide steady returns to investors. Because lenders know that not all of their loans will stay on their books, they can originate more loans. And investors looking for predictable returns can buy MBS for their portfolios.