Primary and secondary mortgage market

Most of the mortgage lenders that lend you money sell off that mortgage further on to other institutions. The ones that keep the mortgage that they originate with themselves are called the primary mortgage lenders. This market of mortgage lending where the mortgage loan originator keeps control of the mortgage is called the primary market.

However, most of them sell to other financial institutions such as pension funds, insurance companies and private investors as well as government agencies. Most mortgages are sold in the secondary market so that the mortgage lender can earn a quick profit and obtained more funds to lend further.

This market of financial institutions that buys existing mortgages from lenders is called the secondary market.

The 2 most common and popular federally chartered government organizations in the secondary market backed by mortgages from primary lenders is the Federal National Mortgage Association, Fannie Mae And the Federal Home Loan Mortgage Corporation, Freddie Mac. These 2 financial institutions were established by the government to stimulate residential housing purchases and they fulfill this purpose by pumping money into the secondary mortgage market. These 2 federal financial institutions further sell the mortgage loans to private investors by converting them into securities and bonds.

Fannie Mae and Freddie Mac are the 2 largest investors in the United States of America in the mortgage market. Loans purchased by Fannie Mae and Freddie Mac annually account for well over 20% of the total US mortgage funds.

The Congress has set limits on the maximum amount of mortgage that Fannie Mae and Freddie Mac are authorized to purchase. Because of this reason only a certain segment of loans can be sold in this secondary market.

The limit set on the highest amount that Fannie Mae and Freddie Mac can purchase varies with market conditions and different amendments brought about by the government in order to meet the housing needs. In the year 2008 the maximum mortgage amount for one, 2, 3 and 4 unit homes was $417,000, $533,850, $645,300 and $801,950 respectively. These prices apply for the major part of the continental US whereas the areas where the construction cost is supposed be higher such as Alaska, Hawaii, Guam and US Virgin Islands have a higher limit set on them.

When you seek a mortgage loan you can ask the lender if he keeps the mortgage or sells it in the secondary market. This may also make a difference to the amount that you can borrow from the mortgage lender.