Secondary Mortgage Market

The buying and selling of mortgage loans. Investors purchase residential mortgages originated by lenders, which in turn provides the lenders with capital for additional lending.

Public marketExchange SecuritiesFixed income Corporate bond Government bond Municipal bond Bond valuation High-yield debtStock Preferred stock Common stock Registered share Voting share Stock exchangeSecuritization Hybrid security Credit derivative Futures exchangeSpot market Forwards Swaps OptionsExchange rate CurrencyMoney market Reinsurance market Commodity market Real estate marketParticipants Clearing house Financial regulationFinance series Banks and banking Corporate finance Personal finance Public financeThe secondary mortgage market is the market for the sale of securities or bonds collateralized by the value of mortgage loans. The mortgage lender, commercial banks, or specialized firm will group together many loans and sell grouped loans as securities called collateralized mortgage obligations (CMOs). The risk of the individual loans is reduced by that aggregation process. These securities are collateralized debt obligations (CDOs), also known as mortgage-backed securities (MBS). The CMOs are sometimes further grouped in other CDOs. Mortgage delinquencies, defaults, and decreased real estate values can make these CDOs difficult to evaluate. This happened to BNP Paribas in August, 2007, causing the central banks to intervene with liquidity. [Table of Contents]