What is Secondary Marketing of residential mortgages?

When a person buys a home, he/she most often takes out a mortgage to purchase it. Traditionally, these home loans would remain in the possession of the lender who originated them. As these loans are paid off, the payments would flow to the lender, who would use the income to issue new loans.  As time progressed lenders began selling home loans to investors, which became known today as the Secondary Mortgage Market.

The Secondary Mortgage Market is a financial market where investors can purchase home loans. When an investor purchases a home loan, he essentially takes over the job of the lender. As the borrower makes payments on the mortgage, these payments flow not to the original lender, but to the investor who now holds the mortgage. Thus, home loans are treated as a financial security similar to bonds.

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