Secondary Markets

Secondary Markets

The mortgage secondary market

is a marketplace where lenders, like banks and mortgage companies, sell the mortgages they originate to investors or other financial institutions. This allows lenders to recover their funds quickly and continue making new loans.

The Mortgage Secondary Market functions as a vital link between lenders who originate home loans and investors seeking to buy mortgage-backed securities. When a borrower applies for a mortgage, a lender evaluates their creditworthiness and, if approved, funds the loan.

Selling a mortgage

Credit Union

Fannie Mae

Freddie Mac

Private Investors

Selling a mortgage

Fannie Mae

Mortgage-Backed Security

Freddie Mac

Private Investors

Benefits of Secondary Markets

Servicers Remaining Engaged

Stabilize Mortgage Rates

Immediate Capital

Why is the secondary market important?

Provides Liquidity

Lowers Borrowing Costs

Supports housing market stability

Secondary Market Options

Ginnie Mae

Freddie Mac

Fannie Mae

For FHA, VA, and USDA loans

For smaller organizations: 1970

The original GSE: 1958

More secondary market options

Beyond Fannie Mae and Freddie Mac, the secondary mortgage market includes private-label MBS issued by banks and financial firms, government-guaranteed securities through Ginnie Mae backed by FHA, VA, and USDA loans, and direct loan sales or securitizations by non-bank entities. These options expand the range of investment opportunities, risk profiles, and loan types available in the market, helping to diversify sources of mortgage funding and support a dynamic housing finance system.

Government securities through Ginnie Mae

Private-label MBS

Direct loan sales/ securitizations by non-bank entities

Inclusiv Mortgage Secondary Market

Inclusiv Mortgage is an example of a non-bank entity offering a secondary market option to approved sellers within the Inclusiv network specifically targeting under resourced borrowers through non-QM mortgages. Target borrowers include people of color, undocumented immigrants (ITIN holders), borrowers under 80% area medium income, borrowers buying in a CDFI target market or a persistent poverty area or on community land trusts and tribal land, to name a few. Inclusiv mortgage designs the loan programs that the Credit Unions offer to their members. The Credit Union processes, underwrites and closes the loans in their name and then sells them to Inclusiv through the secondary market. (Click for more info!)

• ITIN holders
• Communities of color
• Borrowers under 80% AMI
• Borrowers buying in a CDFI target market, persistent poverty area, or in land trusts/tribal land

Second Look Program

mortgage@inclusiv.org

Getting approved to sell to GSEs

To qualify as an approved seller for Fannie Mae or Freddie Mac, lenders must go through an application process, meet strict eligibility and operational standards, and agree to adhere to GSE guidelines. Approval is not automatic; it requires demonstrating financial stability, compliance, and operational capacity to ensure the quality and standardization of the loans being sold. Some lenders choose to work with third-party originator (TPO) approved by the GSEs to facilitate their loan sales so if you are a smaller Credit Union or your mortgage program is too new to qualify, a TPO is a way that you can offer these loans to your borrowers until you are able to be approved to do the loans in-house.

Getting approved to sell to GSEs

requires meeting strict standards relating to...

Property appraisal

Loan eligibility

Operational processes

Underwriting

Compliance

Documentation

These standards are designed to maintain the integrity of the secondary market, protect investors, and ensure borrowers receive fair and sound lending practices.

The information provided in this course is for educational purposes only and does not constitute legal, financial, or other professional advice. Inclusiv makes no guarantees as to the completeness, accuracy, or applicability of the content. Participants should consult appropriate professionals for specific guidance.​ ​ © 2025 Inclusiv. All rights reserved.​ This material is the property of Inclusiv and is intended for authorized use only. No part of this content may be copied, distributed, or reproduced without prior written permission.​ ​

MBS

These entities or investors then bundle many individual mortgages into a single security called a mortgage-backed security (MBS). The MBS is then sold to other investors, such as pension funds, mutual funds, or hedge funds, who earn interest as homeowners continue to make their monthly mortgage payments.

Meanwhile, the mortgage servicers, who are responsible for collecting payments, managing escrow accounts, and handling defaults, often continue to service the loans even after they've been sold, ensuring ongoing management and compliance.

The secondary market also helps to stabilize mortgage rates and make homeownership more affordable by creating a large, liquid market for mortgage securities.

This process of selling and securitizing mortgages provides lenders with immediate capital, which they can then use to fund new loans, thus increasing the availability of mortgage credit in the economy.

Supports housing markaet stability

By enabling continuous lending, it keeps the housing market active and stable.

Lowers borrowing costs

Competition among investors and the availability of funds help keep mortgage interest rates lower.

Provides liquidity

It helps lenders get their money back quickly, so they can lend to more homebuyers.

Freddie Mac

(Federal Home Loan Mortgage Corporation): Est. 1970, Freddie Mac operates similarly to Fannie Mae but was originally designed to support smaller banks and savings institutions. Like Fannie Mae, Freddie Mac buys conforming mortgages from lenders, pools them into MBS, and sells them to investors. Both Fannie Mae and Freddie Mac are vital in establishing a secondary market for conforming loans, helping to keep mortgage rates competitive and expanding access to mortgage credit.

Fannie Mae

Federal National Mortgage Association: Fannie Mae is a Government Sponsored Enterprise (GSE) est. 1938 to support the housing market by providing liquidity to lenders. It does this by purchasing conforming mortgage loans from banks and other lenders, then securitizing those loans into mortgage-backed securities (MBS). Fannie Mae sets guidelines for the loans it will buy, focusing on conforming loans that meet certain size, credit, and documentation standards. By doing so, Fannie Mae helps ensure a steady flow of funds for lenders, making home financing more accessible and affordable for middle-income borrowers.

Ginnie Mae

Government National Mortgage Association: Ginnie Mae guarantees securities that are backed by government-insured or government-guaranteed loans, such as FHA, VA, and USDA loans. Unlike Fannie and Freddie, Ginnie Mae does not buy or sell loans but provides a guarantee to MBS investors, ensuring timely payment even if the issuer defaults.

MBS

These entities or investors then bundle many individual mortgages into a single security called a mortgage-backed security (MBS). The MBS is then sold to other investors, such as pension funds, mutual funds, or hedge funds, who earn interest as homeowners continue to make their monthly mortgage payments.