Which statement best describes the secondary mortgage market?

Which statement best describes the secondary mortgage market?

• A. Mortgage debt is primarily funded directly to homebuyers
• B. It is primarily a warehousing process for existing loans
• C. It guarantees loans through FHA
• D. It is where banks originate and hold loans long term

Answer: (B)

The main idea is that the secondary mortgage market deals with existing loans, not new loans. Lenders originate loans in the primary market, then sell those loans to investors in the secondary market, often pooling them into mortgage-backed securities and sometimes guaranteeing them through agencies. This market provides liquidity, letting lenders recycle capital to issue more mortgages. The described option fits this: lenders often hold loans briefly in a warehousing phase and then sell them on to the secondary market. This contrasts with funding new mortgages directly to homebuyers (primary market) or banks retaining loans long-term. While FHA guarantees exist, that function is not what the secondary market as a whole does.

The main idea is that the secondary mortgage market deals with existing loans, not new loans. Lenders originate loans in the primary market, then sell those loans to investors in the secondary market, often pooling them into mortgage-backed securities and sometimes guaranteeing them through agencies. This market provides liquidity, letting lenders recycle capital to issue more mortgages.

The described option fits this: lenders often hold loans briefly in a warehousing phase and then sell them on to the secondary market. This contrasts with funding new mortgages directly to homebuyers (primary market) or banks retaining loans long-term. While FHA guarantees exist, that function is not what the secondary market as a whole does.