Secondary mortgage
market is one in which existing mortgages
are bought and sold on the value of future
cash
flows.
Investing in the
secondary mortgage markets is very risky and
should only be practiced by sophisticated
investors. Just about the time that we are
putting together this website, there is a
dramatic real estate meltdown in the United
States, mainly due to the crash of the
secondary mortgage market.
Basically,
here is what happens in mortgage meltdown;
A borrower goes
to a local mortgage broker to borrow
funds to purchase a property at inflated
prices
The mortgage
broker contacts a few lenders that are
willing to lend money at a market
interest rate and with a low or zero
down payment
The borrower
collects the funds and buys the property
at low interest rate and no money of its
own, therefore having no equity in the
property
The lender to
recoup its invested cash, dumps all the
collected mortgage notes onto a
secondary mortgage market and sells it
to individual investors in shares of
$5,000 and up each
As the real
estate begins to slow down, the housing
prices drop and the interest rates
increase, the borrowers who must renew
their mortgages are looking to refinance
at much higher interest rates and having
not enough equity are turned down by the
lenders
Little choice is
left to the borrower as they can no
longer maintain the monthly mortgage
payments at such high costs, and
therefore are forced to sell under
power of sale or
foreclosure
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