Explain in detail and with examples why the functioning of mortgage institutions could be considered arguable as partial fulfillment of the debt markets.
Explain in detail and with examples why the functioning of mortgage institutions could be considered arguable as partial fulfillment of the debt markets.
Mortgage institutions are the companies that are mainly into the production of mortgage loans, be it for residential purposes or commercial purposes. These institutions take funding from other financial institutions that are also involved in selling of mortgages.
Now, there are two categories of mortgage market exist, primary mortgage market and secondary mortgage market. Primary mortgage markets are in which there is a direct contact of buyers and sellers of mortgage, whereas in the secondary mortgage market there is an involvement of a third party. The third party in the secondary market buys mortgages from the mortgage institute and convert it into securities to sell it in the capital market. These securities can be sold in the form of securities backed by mortgage to investors. The buyers of these securities get a return like normal securities but mortgage-backed securities considered safer due to very less chance of loss of investment.
Retail investors in the secondary market are responsible for the rates and fees of the mortgage. For example: If a person with a low credit score wants to take a mortgage loan, he will be considered as risky and high rates and fees will be charged on him, to cover for the loss of failure of non-repayment in the future. The buyers of mortgage-backed securities can be institutional investors too. These investors are hedge funds, pension funds, the federal government, and insurance companies.
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