Chapter 1
Federal Mortgage Laws and Consumer Protection Regulations
Course: Safe Mlo Prep
Subject: Safe Mlo Prep
Chapter: General Mortgage Knowledge
OVERVIEW
The secondary mortgage market is where closed loans are bought and sold among investors. It is the mechanism that gives lenders the liquidity to keep originating new loans — without it, lenders would quickly run out of money to lend. Understanding the secondary market is foundational to understanding how the entire mortgage finance system works.
- Primary Market vs. Secondary Market
Primary market: Where mortgage loans are originated — directly between the lender and the borrower at the point of transaction.
Secondary market: Where closed mortgage loans are bought and sold among investors after origination. The borrower is not involved in secondary market transactions — they continue making payments to whoever services the loan.
- Key Secondary Market Participants
Fannie Mae (Federal National Mortgage Association):
- Purchases conventional conforming loans from lenders
- Packages them into mortgage-backed securities (MBS) sold to investors
- Uses Desktop Underwriter (DU) for loan eligibility assessment
- Government-sponsored enterprise (GSE) — placed in FHFA conservatorship in 2008