When it comes to a residential mortgage, what many people don’t know is that there is something called the secondary mortgage market. Secondary mortgage markets consist of two main sectors: government and conventional. Government markets generally offer attractive terms to meet social needs, such as lower and middle class families or veterans purchasing their first home. Under the structure of government markets, the government assumes a large portion of the risk for lending the money. This assurance gives the primary lenders greater freedom and flexibility when making the loans and allows families, who might not otherwise be eligible, qualify for a home purchase through a residential mortgage.
There are two general types of government markets: state and national
At state level, what you’ll generally find are state housing finance agencies. State housing finance agencies use the full faith and credit of a state government and IRS tax codes to offer attractive interest rates to first time homebuyers and veterans.
The national markets insure and guarantee mortgages, which meet national priorities and include:
- The U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA),
- The Department of Veterans Administration (VA) loan program
- The Department of Agriculture’s Farmer’s Home Administration (FmHA) loan program
Since these loans are guaranteed and insured by the federal government, the risk to lenders is reduced, but eligibility for these loans is restricted by income, geographic region and/or the price of the home. FHA loans exemplify government-insured loans. Those made by the VA are examples of government-guaranteed loans. FmHA guarantees and insures loans in rural areas and small towns.
There are two general types of conventional markets: federal government chartered institutions and “jumbo loans”
The larger of these two markets are the federal government chartered institutions. A majority of the loans made in America are purchased by these institutions, which include:
- Fannie Mae
- Freddie Mac
- Ginne Mae
In fact, Fannie Mae is one of the largest corporations in America, with a volume of more $350 billion in residential mortgage loans a year.
The other market category consists of loans that are kept within the private lending institution or held by a large private lender, often referred to as “jumbo loans”. The conventional market reduces the risk to the primary lender by buying all or part of the firm’s mortgage loan portfolio. The purchased loans are then packaged into mortgage-backed securities and sold on the bond market.
A certified RESNET Home Energy Professional can give you some good advice about energy mortgages and which ones you may be eligible for.