New York State Real Estate Salesperson Licensing Exam

What is the primary function of the secondary mortgage market?

1. Provide loans to first-time homebuyers

2. Buy and sell mortgages

3. Establish interest rates for mortgages

4. Facilitate home inspections

The correct answer is: Buy and sell mortgages

The primary function of the secondary mortgage market is to buy and sell mortgages. This market plays a crucial role in providing liquidity to the mortgage industry, allowing lenders to sell the mortgages they originate to investors. By selling these loans, lenders can recoup their capital, enabling them to make new loans, which ultimately increases the availability of home financing for consumers. This process also helps stabilize interest rates and promotes consistency in the mortgage market. Investors, including government-sponsored enterprises like Fannie Mae and Freddie Mac, purchase these mortgages to package them into mortgage-backed securities (MBS), which are then sold to other investors. This system supports the broader economy by encouraging homeownership while transferring the risk associated with individual mortgages from lenders to investors. While other options mention specific services related to home buying, they do not accurately describe the central role of the secondary mortgage market. For example, providing loans to first-time homebuyers focuses on direct lending rather than the trading of existing loans. Establishing interest rates is primarily influenced by broader economic factors and the primary mortgage market, rather than being a function of secondary market activities. Facilitating home inspections is not relevant to the secondary mortgage market, as it pertains to property evaluation rather than mortgage transactions.