Save Some Money and Headache:
Primary and Secondary
Mortgage Markets

The mortgage markets are divided into two categories of lenders: the primary mortgage market and the secondary mortgage market. The interaction between these two markets can influence whether you qualify for your loan, the long term convenience of your loan, and other issues.

Primary Mortgage Money Market

The primary mortgage market is the direct contact from which most people get their financing. This is the company that interacts with you throughout your loan application.

Mortgage loans are offered through many sources: Commercial Banks, Savings & Loans, Credit Unions, Pension Plans, Mutual Savings, Insurance Companies, Mortgage Companies, Mortgage Brokers, and Private Individuals. There are many mortgage lenders doing business under each of these categories. Therefore competition is a large factor in many lenders’ pricing.

The job of the primary lender is to underwrite loans. This simply means that the lender collects and reviews your personal information. They consider the factors that determine your chance of repaying the mortgage. The underwriter is the person with ultimate responsibility to decide whether you qualify for financing.

In House Underwriting Some primary lenders have their own in house underwriter, while others do not. Most Mortgage Brokerages do not have an in house underwriter. This is because the brokerage usually does not have enough money to satisfy your loan requirements. They simply broker someone else's money.

When a lender has no money to risk, they simply pass the risk on to a secondary lender. Therefore, the underwriter employed by the secondary lender often has the final say in your loan approval. When an underwriter is not in house, the primary lender is sometimes unfamiliar with what is expected.

Your lender's familiarity with underwriter expectations can determine the success of your loan. If you are purchasing a property, it can determine the success of your purchase. This is because your real estate purchase contract and other documents are time sensitive.

It is important for your lender to be familiar with underwriter expectations. The next question to ask is who will your long term loan servicer be? Find out why this may be important.

Secondary Mortgage Money Market

So what is this the secondary money market and how does it affect your loan? The secondary mortgage money market consists of the businesses who service existing loans. Secondary lenders purchase your loan in hopes to gain long term profit.

Loan servicing is the monthly processing of payments and other ongoing considerations with your mortgage. As a borrower, you will have a long term relationship with your secondary lender. Or in some cases, your loan may be sold numerous times.

Many Loans Get Sold Most loans are sold at least once. Preferably, your loan won't be sold numberous times. Each time your loan is sold, you have to update your bill payment address. Keeping track of this can be a real hassle when your life is already busy.

The new lender usually allows a short grace period (two months) while the old lender still accepts your payments.During that time, the payments are forwarded. After that, you can be charged large penalties for failing to update your lender billing address.

Who Are Secondary Lenders? Secondary lenders include: Fannie Mae (FNMA) which stands for Federal National Mortgage Association and Freddie Mac the Federal Home Loan Loan Mortgage Corporation; Ginnie Mae (GNMA) or Government National Mortgage Association; Insurance Companies; Commercial Banks; Pension Plans; and Private Investors. Others may also act as a secondary mortgage lender, but these are the main secondary lenders. See Josh's real estate glossary for more information about some of these specific lenders.

Your choice of lenders can affect how often your loan is sold. It can also affect the long term convenience of your loan in several ways. Secondary lenders offer various services to their borrowers. Some companies offer better services than others. Here are some long term convenience features to look for in a secondary lender.

• Online access to your account and bill payment.
• Bi-weekly and other payment options to suit your needs.
• What fees are charged for online services and payment options.
• How often they re-sell their loans.

How To Choose Your Secondary Lender As a borrower, you usually don’t have control over who becomes your secondary lender. Or third lender, or fourth . . . That is, unless you select your primary lender wisely.

Ask your loan officer which secondary lender will likely buy your loan. Then call the likely secondary lenders to find out if they offer the features you want. If you don't like what you learn, you may be forced to either settle or change primary lenders. Beyond this, you cannot control who buys your loan.

Alternatively, you can obtain a loan directly from a secondary lender. Some secondary lenders have loan officers who act as primary lenders. This takes the middle man out of the equation and can occasionally save you some money. In rare cases, these lenders may waive some of the fees when issuing the loan.

Lenders always retain the right to sell your loan or change their services at any time. But after carefully selecting your lender, you may be more satisfied in the long run.

A Final Note You are probably wondering how your interest rate and basic loan terms are affected when your loan is sold. These are not usually affected because they are written into the contract. The contract recorded with the county cannot be modified so it is wise to read it carefully.