The Secondary Mortgage Market…where the loans are sold and money is really made…

Now onto the Secondary Mortgage Market. This is the market where lenders sell the loans they fund. Now, some lenders “portfolio” their loans, or keep them on their books and collect monthly payments (or service them), but, many lenders sell their loans to investors.

Secondary Mortgage Market

There are several ways to handle loans on the Secondary Market.

• Single Loan Trades – Lender sells loans on an individual loan basis to an investor


• Bulk Loan Trades – Lenders sell several loans of the same type to an investor


• Creating Mortgage Backed Securities – Lenders combine loans of the same type and create a mortgage backed securities (a bond which represents a securitized interest in a pool of residential mortgages) sold on the market.

The following process is involved in selling loans to the secondary market:

• On an individual loan basis, Secondary Marketing staff locks the loan with an investor. The loan is then sent to Shipping after Funding. The Shipping Department packages the loan to submit to the investor. The investor reviews the loan and, if approved, purchases the loan. When the investor purchases the loan, the warehouse bank is paid off.


• On a bulk loan basis, Secondary Marketing staff creates a spreadsheet of similar loan types and submits to investors. The investors review information in the spread sheet and “bids” the price of the loan. The lender then submits the loans in the bulk to the investor. The investor reviews the loans, and if approved, purchases the loans.

FHA, VA, FNMA (Fannie Mae) and FHLMC (Freddie Mac) are the major entities in the Secondary market. However, many lenders sell to investors who in turn will sell the loans to these entities or create their own Mortgage Backed Securities.