January 29, 2009

The mortgage industry

Posted to Brad Sears

Here’s a little mortgage info that might help you understand the housing situation this country is facing.

Mortgages are really controlled by the secondary market. Most of the lenders who underwrite, approve and fund loans are part of the primary market. The secondary market is made up of companies that don’t underwrite, approve and fund most of their loans; they buy them from the primary market and they prefer to just service the loans. That’s why when you buy a home, you usually get a letter within a few months telling you that your loan has been sold and to now make your payments to a new mortgage company.

Fannie Mae and Freddie Mac are the biggest players in the secondary market. So when so many of their loans started going bad, they didn’t have money to buy more loans. This affected the Primary market because the Primary market only has money for so many loans at a time and they count on their ability to sell loans to the secondary market to get their money back so that they can write more loans. So I’m sure you can now see the vicious cycle that we are caught in.

If the secondary market fails, then there are not enough lenders to fund all the loans for the number of people who want to buy homes. Without home loans, 99.9% of people can’t buy houses. This is the main reason the government stepped in to bail out Fannie Mae and Freddie Mac. The availability of home loans is critical to our economy.

Posted By: Brad Sears


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