Secondary mortgage market is the market for securities or bond sale secured by mortgage loan value. Mortgage lenders, commercial banks, or specialized companies will classify many loans (from "primary mortgage market") and sell group loans known as mortgage collateral (CMO) or mortgage-backed securities (MBS) to investors such as pension funds, insurance companies, and hedge funds. Mortgage-based securities are often incorporated into secured debt obligations (CDO), which may include other types of debt obligations such as corporate loans.
The secondary mortgage market is intended to provide a new source of capital for the market when traditional sources in one market - such as the Savings and Loans association (S & L) or "savings" in the United States - can not. It is also expected to be more efficient than the old local markets for funds that may have disadvantages or advantages depending on location. In theory, the risk of default on individual loans is greatly reduced by this aggregation process, so even high-risk individual loans can be treated as part of AAA investment (safest possibility).
On the other hand, securitization mortgages do not bind "the relationship between the borrower and the lender", so the initiator of the mortgage no longer has a direct incentive to ensure the borrower can repay the loan. Although historically in the US, less than 2% of people have lost their homes due to foreclosures; interest rates are much higher during the Subprime mortgage crisis. Misbehavior, default, and decline in real estate values ​​can make the CDO difficult to evaluate. This happened to BNP Paribas in August 2007, which caused the central banks to intervene with liquidity.
Video Secondary mortgage market
See also
- Trust of real estate investing
- Guaranteed Payable Liabilities in Wikinvest
- Asset supported security
- Commercial bank
Maps Secondary mortgage market
References
External links
- Current Mortgage-Backed Security (MBS) Price
Source of the article : Wikipedia
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