National Real Estate Exam (PSI)FinancingEasy
A mortgage company originates a home loan and, shortly after closing, sells the loan to an investor who pools it with other loans into mortgage-backed securities. This activity takes place in which market?
- AThe escrow market
- BThe title insurance market
- CThe primary mortgage market
- DThe secondary mortgage market
Show answer & explanationAnswer & explanation
Correct answer: D. The secondary mortgage market
The secondary mortgage market is where existing loans are bought, sold, and pooled into securities (by entities such as Fannie Mae, Freddie Mac, and Ginnie Mae), which replenishes lender funds so they can originate new loans. The primary market is where loans are first made to borrowers.
Why the other options are wrong
- A. Escrow accounts hold funds for taxes/insurance, unrelated to loan resale.
- B. Title companies insure ownership, they do not buy pooled loans.
- C. The primary market is where the loan was originally created, not where it is resold.
Secondary Mortgage Market
The market where existing mortgage loans are bought and sold among lenders and investors, often pooled into mortgage-backed securities.
- Includes Fannie Mae, Freddie Mac, Ginnie Mae
- Provides liquidity so lenders can make more loans
- Different from the primary market where loans originate
Memory trick: Primary creates, Secondary recycles.