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Secondary
Markets
Secondary Markets
Residential and business mortgages may be purchased from lenders by
federally-chartered, government-sponsored enterprises or by private secondary market
purchasers.
Criteria
- Secondary market purchasers establish underwriting criteria for loans they will buy;
they may negotiate terms with a lender for loans that do not meet their standard criteria.
Uses
- The secondary market helps balance availability of funds for mortgages throughout the
country.
- Purchase of mortgages in the secondary market gives lenders:
- increased liquidity of funds and access to capital;
- additional options with underwriting criteria;
- decreased risk of lower profits because of interest rate changes;
- decreased risk of lower profits because of early payback of loans.
Structure
Secondary market purchases are structured in various ways:
- Mortgage-backed securities represent shares in a pool of mortgages. These are sold to
individual investors, making additional capital available for mortgages.
- With mortgage-backed bonds, the mortgage originator or purchaser retains ownership of
the mortgages, which are deposited with a trustee and used as collateral for bonds issued
to raise capital.
- Mortgage securities are used as collateral for other transactions; the security holder
sells the mortgage security to an investor with an agreement to repurchase the security
after a specified period at a specified interest rate.
FARMER MAC I POOLED LOAN PROGRAM
Federal Agricultural Mortgage Corporation (Farmer Mac)
Farmer Mac provides a secondary market for agricultural real estate and rural housing
loans by allowing loans to be sold into loan pools that serve as collateral for securities
sold to the investing public.
Eligibility
- Eligible uses include purchase of property used for the production of agricultural
commodities and consisting of at least five acres or producing at least $5,000 in annual
receipts.
- Loans for rural housing must be in rural areas or communities of 2,500 or less, must not
have a purchase price of more than $109,200 (adjusted for inflation), or be on no more
than 10 acres of land.
- Loan originators must own and maintain a minimum amount of Farmer Mac-issued shares of
voting stock.
- Poolers must be certified by Farmer Mac and meet requirements of the program.
Program
- The pooled deposits that provide a guarantee of repayment for investors help manage the
risk of interest rate changes.
- Loan amounts cannot exceed 75 percent of the appraised value of the land and dwelling,
or 85 percent with private mortgage insurance.
- Amortization may be up to 30 years.
- Rates are fixed through negotiation between the lender and borrower.
- Equity is subject to the lender's criteria for the originated loan.
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FARMER MAC II GUARANTEE PROGRAM
Federal Agricultural Mortgage Corporation (Farmer Mac)
Lenders may sell the guaranteed portions of Rural Development (RD) loans to Farmer Mac,
resulting in increased liquidity for lenders and reduced interest rate risks associated
with long-term, fixed-rate loans.
Eligibility
- The guaranteed portion of Rural Development loans for farm ownership and farm operating
loans, which may be newly-originated or existing, can be sold to Farmer Mac.
- Loans in portfolio must have at least 12 months remaining term, have valid assignable
guarantees, be current and not delinquent in the previous 12 months, and not have an early
payoff, delinquency, liquidation or default.
- Lenders must follow RD standards and procedures for originating farm ownership and
operating loans.
Program
- The ability to sell guaranteed portions of loans helps lenders manage interest rate
risk.
- Rates are fixed and are seven-year fully amortized or 20-year fully amortized farm
ownership loans with five- or 10-year resets.
- Equity is subject to the lender's criteria.
- Maturities are the same as the prevailing lender's criteria for RD loans.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FREDDIE MAC)
Freddie Mac purchases mortgages and resells them in the form of guaranteed mortgage
securities.
Eligibility
- Loans must be originated by federally insured savings and loan associations, other
federally insured financial institutions, or HUD approved mortgage bankers.
- Loans cannot exceed 80 percent of the value of the property unless the seller retains at
least 10 percent participation in the mortgage; the amount in excess of 80 percent is
insured by an approved private mortgage insurer; or the seller agrees to repurchase or
replace the mortgage in case of default.
- Loan-to-value ratios cannot exceed 95 percent for one-and two family properties and 90
percent for three- and four-family properties.
- Loans on single-family homes can be up to $207,000; for two-family homes up to $264,750;
for three-family homes up to $320,050; and for four-family homes, up to $397,800.
- Mortgages must meet credit, appraisal and underwriting criteria established by Freddie
Mac.
- Loans insured by the Federal Housing Administration or guaranteed by the Veterans
Administration must be at least one year old before purchase.
- Mortgage originators and servicers must be approved by Freddie Mac.
Program
- Freddie Mac commits to purchase a variety of fixed-rate, adjustable-rate, and
graduated-payment first mortgages, which are usually converted to securities and sold for
cash in the form of participation certificates.
- Whole loans and participations of 50 to 95 percent are purchased on one- to four-family
properties, with 15- and 30-year terms.
- Second mortgages on single family homes and conventional mortgages on multifamily
properties with five or more units are purchased.
Contact
Federal Home Loan Mortgage Corporation
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FANNIE MAE)
Fannie Mae is a publicly owned corporation, chartered by Congress, that invests in
mortgages originated by lenders.
Eligibility
- Conventional, FHA-insured, or VA-guaranteed loans may be purchased, ranging in value
from up to $207,000 for single-family homes to up to $397,800 on four-family homes.
- Multifamily mortgages on conventionally-financed or FHA-insured projects are also
eligible for purchase.
- If a conventional mortgage is for more than 80 percent of the value of the property,
private mortgage insurance is generally required on the portion of the loan exceeding 75
percent of the value of the property.
- If the borrower's down payment is less than 10 percent, housing expenses should not
exceed 25 percent of the borrower's monthly income, and housing expenses and installment
debt combined should not be above 33 percent.
- Loan originators and servicers must be approved by Fannie Mae for each type of loan they
plan to sell to Fannie Mae.
Program
- Fannie Mae issues commitments to purchase a specified dollar amount of loans from a
lender.
- Lenders pay fees to Fannie Mae, usually between 1/2 and 2 percent of the amount of
commitment.
- Fannie Mae will purchase a wide variety of types of mortgages for purchase and
rehabilitation of different types of housing.
Contact
Federal National Mortgage Association
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA/GINNIE MAE)
Ginnie Mae purchases mortgages generated by subsidized programs to support the
construction and purchase of low-income housing.
Eligibility
- Mortgages must be insured or guaranteed by the Federal Housing Administration (FHA),
Rural Development (RD), or the Veterans Administration (VA).
- Mortgages in Ginnie Mae mortgage-backed security pools must have interest rates higher
than the security rate.
- Lenders must be approved by Ginnie Mae and must have a guaranty commitment from Ginnie
Mae before issuing securities.
- An issuer of Ginnie Mae securities must be an FHA-approved mortgagee and must be
approved by Ginnie Mae or Fannie Mae as a mortgage servicer.
Program
- Ginnie Mae is part of the Department of Housing and Urban Development and most of its
programs are carried out under contract with the Federal National Mortgage Association
(Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
- Ginnie Mae can guarantee the timely payment of interest and principal on securities
issued by lenders.
- Most Ginnie Mae securities are pass-through certificates representing interest in a pool
of mortgages for which the payment of interest and principal is passed on to investors.
- A GNMA pool of mortgage-backed securities must consist of the same types of loans with
the same interest rate.
- A GNMA II program may include multiple-issuer jumbo pools and may have interest rates
that vary by up to 1 percent.
Contact
Government National Mortgage Association
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