Secondary Market Products in the Mortgage System and Global Practices

In general terms, the mortgage market has two faces, the primary and the secondary markets. The primary market covers housing mortgage loans. On the other side of the mechanism, these loans are securitized and issued in financial markets with different form of securities in secondary markets. The common name of these instruments is “mortgage backed securities - MBS”. A mortgage backed security is a financial instrument issued in capital markets for investors, derived from either backed by the cash flow of the housing loan repayments (which is called pay-through) or backed by directly selling the mortgage pools to the MBS issuers (which is called passthrough). The most trading secondary mortgage market instruments and world practices are explained in this article.