Looking at an American mortgage from the outside can seem identical as a mortgage you would obtain in Ireland. You sign a contract, you’re given the keys to your new home in exchange for monthly payments for a set amount of years. But behind the scenes is where things get a little more complicated. The United States has created a secondary mortgage market after the Great Depression in the 1930’s. Since then, the secondary mortgage market is a multi-billion dollar corporation that has the single biggest taxpayer corporation in the US.
In simple terms, the secondary mortgage market includes Government-Sponsored Enterprises that act as the middle man between the mortgage lenders and the investors. They will buy residential loans off of lenders then securitise and trade them to investors. When the Government-Sponsored Enterprises buy a loan off a mortgage lender it returns the loan amount so the lender can turn around and lend to a new family. This allows more capital to be freed to help more families reach their goals of becoming a homeowner and invest in their future.
Basics on the Secondary Mortgage Market
In part of this 10 part blog series were going to dive deep into how the American mortgage works and why the United States decided to establish a secondary mortgage market.