Massachusetts Real Estate License Practice Test

Which type of mortgage lender sells mortgages to investors?

1. Primary lenders

2. Secondary lenders

3. Private lenders

4. Government lenders

The correct answer is: Secondary lenders

The correct answer is secondary lenders. Secondary lenders play a crucial role in the mortgage market by purchasing loans from primary lenders who originate mortgages. This process is part of the secondary mortgage market, where loans are bought and sold, enabling primary lenders to free up their capital. This allows them to continue providing new loans to borrowers. By selling their mortgages, primary lenders mitigate risk and enhance liquidity. The secondary mortgage market also helps establish a stable source of funding for mortgage lending, as these lenders often bundle and sell loans as mortgage-backed securities to investors. This system is pivotal for maintaining the flow of capital in the housing market, ultimately benefiting consumers by allowing more access to financing. The other types of lenders mentioned, such as primary, private, and government lenders, have different roles in the lending ecosystem. Primary lenders are the ones who provide the loans directly to consumers. Private lenders typically operate independently and may not sell their mortgages in the same way as secondary lenders do. Government lenders facilitate specific types of loans, often backed by governmental programs, but they do not engage in the secondary market for selling loans.