The secondary mortgage market was intended to provide a new source of capital for the market when the traditional source in one market—such as a Savings and loan association (S&L) or "thrift" in the United States—was unable to. It also was hoped to be more efficient than the old localized market for funds which might have a shortage or surplus depending on the location.[3] In theory, the risk of default on individual loans was greatly reduced by this aggregation process, such that even high-risk individual loans could be treated as part of an AAA-risk (safest possible) investment.
On the other hand, mortgage securitization undid "the connection between borrowers and lenders", such that mortgage originators no longer had a direct incentive to make sure the borrower could pay the loan. While historically in the US, fewer than 2% of people lost their homes to foreclosure; rates were far higher during the Subprime mortgage crisis.[4] Delinquencies, defaults, and decreased real estate values could make CDOs difficult to evaluate. This happened to BNP Paribas in August, 2007, causing the central banks to intervene with liquidity.
^Definition of 'Primary Mortgage Market' "The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction ..."
secondary, mortgage, market, secondary, mortgage, market, market, sale, securities, bonds, collateralized, value, mortgage, loans, mortgage, lender, commercial, bank, specialized, firm, will, group, together, many, loans, from, primary, mortgage, market, sell,. The secondary mortgage market is the market for the sale of securities or bonds collateralized by the value of mortgage loans A mortgage lender commercial bank or specialized firm will group together many loans from the primary mortgage market 1 and sell grouped loans known as collateralized mortgage obligations CMOs or mortgage backed securities MBS to investors such as pension funds insurance companies and hedge funds 2 Mortgage backed securities were often combined into collateralized debt obligations CDOs which may include other types of debt obligations such as corporate loans The secondary mortgage market was intended to provide a new source of capital for the market when the traditional source in one market such as a Savings and loan association S amp L or thrift in the United States was unable to It also was hoped to be more efficient than the old localized market for funds which might have a shortage or surplus depending on the location 3 In theory the risk of default on individual loans was greatly reduced by this aggregation process such that even high risk individual loans could be treated as part of an AAA risk safest possible investment On the other hand mortgage securitization undid the connection between borrowers and lenders such that mortgage originators no longer had a direct incentive to make sure the borrower could pay the loan While historically in the US fewer than 2 of people lost their homes to foreclosure rates were far higher during the Subprime mortgage crisis 4 Delinquencies defaults and decreased real estate values could make CDOs difficult to evaluate This happened to BNP Paribas in August 2007 causing the central banks to intervene with liquidity See also editReal estate investment trust Asset backed security Commercial bankReferences edit Definition of Primary Mortgage Market The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction Investopedia Primary Mortgage Market All the Devils Are Here MacLean and Nocera p 5 All the Devils Are Here MacLean and Nocera p 19External links editCurrent Mortgage Backed Security MBS Prices nbsp This economics related article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Secondary mortgage market amp oldid 1162585858, wikipedia, wiki, book, books, library,
