Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentHard
A Florida pension fund is looking to invest in mortgage-backed securities (MBS) to diversify its portfolio. This type of investment product is primarily traded in which market?
- ASecondary mortgage market
- BPrimary mortgage market
- CCapital market
- DMoney market
Show answer & explanationAnswer & explanation
Correct answer: A. Secondary mortgage market
The secondary mortgage market is where existing mortgages and mortgage-backed securities are bought and sold. This market provides liquidity to lenders in the primary market and attracts large investors like pension funds.
Why the other options are wrong
- B. The primary mortgage market is where loans are originated directly to borrowers.
- C. The capital market is a broader term for markets trading long-term debt or equity, which includes the secondary mortgage market but is not the most specific answer.
- D. The money market deals with short-term borrowing and lending, not long-term mortgage investments.
Secondary Mortgage Market
A market where mortgage loans and servicing rights are bought and sold between mortgage originators and investors.
- Provides liquidity to primary lenders (banks, credit unions).
- Major players include Fannie Mae, Freddie Mac, Ginnie Mae.
- Mortgage-backed securities (MBS) are key instruments traded here.
Memory trick: Secondary: Where mortgages get a second life, bought and sold.