Secondary Private Lending Market: Stated Income Mortgages
A large percentage of newly originated mortgages are sold by their originators into the secondary market, where they are packaged into mortgage-backed securities (MBS) and sold to investors such as pension funds, insurance companies and hedge funds. The secondary mortgage market helps to make credit equally available to all borrowers across geographical locations. On the secondary market, products such as stated income mortgages are offered by lenders looking to meet demand.
When you finance a property with a mortgage loan, the borrower and the lender are engaging in business on the primary mortgage market. In addition there is a secondary market where the lender recoups the amount it lent to the borrower through funds provided by outside investors. When mortgage loans are purchased on the secondary market by private investors, the mortgage rates are driven by competition and risk. The rates on mortgages are determined by what the borrower can afford to pay for their mortgage, and what the investment community is willing to receive as a return on their investment.
Following the subprime mortgage crisis, investors were less willing to invest in mortgages on the secondary markets at lower rates. As a result, the government had to fill the void by purchasing mortgages in an effort to prevent rates from skyrocketing out of control to the point that property would become too expensive to own. As of recent, the government is planning to slowly taper its purchasing of mortgages on the secondary market as it hopes hat private investment will return to fill the void.
For more information regarding stated income mortgages, contact the specialists at HML Investments today.