1. The Secondary Mortgage Market
Chapter 12
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2. Introduction to Secondary Market
• Originators of new loans are called primary lenders
• Most loans created by primary lenders are sold in the
secondary market
– Lenders acquire money for new loans; avoid the risk of holding long-
term fixed interest loans
– Emergence of securitization of pools of mortgage loans
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3. Federal Housing Financing Agency
(FHFA)
• Regulates Fannie Mae, Freddie Mac, and
Federal Home Loan Bank (FHLB)
• Goal is to restore confidence in Fannie Mae
and Freddie Mac; enhance their ability to
fulfill their mission
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4. Fannie Mae
• Shareholder-owner company
• Purchases mortgages; enters into servicing
agreement
• Sells mortgages in open-market transactions
• Administered price system
• Mortgage-backed securities (MSBs)
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5. Underwriting Standards for Conventional Loans Sold to
Fannie Mae
• Conforming and nonconforming loans
• Automated underwriting system
• Credit scoring
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6. Freddie Mac
• Created to provide secondary mortgage
market for lending institutions that were
members of the Federal Home Loan Bank
System
• Generally follows Fannie Mae’s underwriting
standards
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7. Ginnie Mae
• Government National Mortgage Corporation,
• Mission is to expand affordable housing by
linking domestic and global capital markets to
the nation’s housing markets
• Offers mortgage backed securities (MSBs)
– Pass-through certificates
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