What distinguishes the primary mortgage market from the secondary mortgage market?

The primary mortgage market is characterized by the origination of loans directly from lenders to borrowers. This is where mortgage loans are created, typically facilitated by banks, credit unions, and mortgage brokers. Borrowers apply for loans to purchase or refinance properties, and lenders assess the creditworthiness of these borrowers to extend financing.

In contrast, the secondary mortgage market operates as a platform where these originated loans are bought and sold among investors. After loans are created in the primary market, they can be sold to government agencies (like Fannie Mae and Freddie Mac) or other financial institutions. This process allows lenders to free up capital, enabling them to provide more originating loans to new borrowers.

This distinction is crucial for understanding how the mortgage lending process operates as a whole, as it directly affects the availability of credit in the primary market and the overall stability of the housing finance system. Other choices regarding regulations or types of mortgages don’t accurately capture this fundamental distinction between the two markets.