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A primary mortgage market is a market in which mortgage loans are originated. Borrowers and lenders meet in the primary mortgage market to negotiate the terms of loans and ultimately to enter into lending agreements. Once a loan has been originated, it may be sold to another financial institution, in which case it enters the secondary mortgage market. These markets are closely tied and many companies in the financial industry are involved in both the primary and secondary mortgage markets.
A mortgage is a secured loan which is most commonly seen used in real estate purchases. When a borrower obtains a mortgage, she or he offers a piece of real estate as collateral on the loan. Typically, the collateral is the same piece of real estate which the loan is being used to purchase. If the borrower defaults on the loan, the lender can seize the real estate and sell it to settle the borrower's debt. There are a number of different mortgage products available to meet different kinds of needs including residential and commercial mortgages in a myriad of flavors.
On the primary mortgage market, lenders such as banks and credit unions can connect with people who want to borrow money to provide borrowers with information about the options available to them. Mortgage brokers are also active in the primary mortgage market. These mortgage professionals work with borrowers to “package” them, collecting information about their income, assets, and so forth to present potential lenders with a complete package of information which can be used to originate a loan.
People who make or broker mortgage loans need licenses from the government and must follow certain ethical standards. Many financial institutions provide training and licensing to their personnel as an investment in their staff. Brokers tend to be independent and pursue slightly different certifications because the nature of their work is different. The goal of all parties is to establish a borrower with a loan she or he can comfortably afford.
When the economy is good, business in the primary mortgage market is usually brisk and it is generally easy to get loans, often on very good terms. During periods of credit squeezing and other financial issues, however, it can be more challenging to obtain a mortgage. This has a ripple effect, as the secondary mortgage market suffers when fewer loans are being originated, and in turn financial instruments based on that market can fall in value.
@Soulfox -- It is worth mentioning that some of those companies that don't sell their mortgages into the secondary market are among the strongest around. When credit is really, really easy to come by there is a temptation to run as many loans as possible through and sell them in the secondary market. After all, the primary lender isn't on the hook of those fail, so they become someone else's problem. No wonder banks get tempted.
Those that service their own mortgages, however, tend to be very selective when it comes to making home loans. Those banks get criticized for having lending standards that are too tough when secondary markets lead to credit being very easy to get, but they sure look small when some of those "easy credit" mortgages fail and foreclosures become a problem.
There is an important lesson to be learned here. Namely, know if the bank you are dealing with sells its mortgages into the secondary market.
Quite often, people will purchase a loan and then be surprised when they find out a completely different company is in charge of accepting mortgage payments. That happens when the primary lender sells a mortgage into the secondary market and another company takes on the responsibility of accepting mortgage payments.
There is nothing wrong with that arrangement unless someone takes out a mortgage and assumes they'll get to deal with the local bank they know and use instead of one located halfway across the country.
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