What does the term "secondary market" refer to in mortgage banking?

The term "secondary market" in mortgage banking specifically refers to the sale of existing loans. This market allows lenders to sell the mortgages they have originated to other financial institutions or investors. The purpose of the secondary market is to provide liquidity to lenders, enabling them to free up capital to issue more loans. When loans are sold in the secondary market, they are usually pooled together and may be securitized into mortgage-backed securities. This process is critical for the overall functioning of the mortgage industry, as it helps maintain the flow of mortgage credit and influence interest rates.

On the other hand, the initial loan issuance pertains to the primary market, where loans are made directly to borrowers. Loan servicing involves managing the ongoing administration of mortgage loans after they are originated, ensuring that payments are processed and managing escrow accounts. Loan underwriting encompasses the evaluation process that lenders use to assess the risk of lending to borrowers, which occurs before loans are issued. These aspects are all part of the broader mortgage banking process but do not relate to the secondary market specifically.