What term describes a financial institution that purchases mortgage loans?

A financial institution that purchases mortgage loans is referred to as a secondary market entity. This term specifically denotes organizations or institutions that acquire existing mortgages from the primary lenders, typically mortgage banks or credit unions, which originate the loans. The secondary market is essential because it provides liquidity to the mortgage market, allowing lenders to free up their capital and offer additional loans to borrowers.

By purchasing these loans, secondary market entities can bundle them into mortgage-backed securities (MBS) and sell them to investors, further facilitating the flow of capital in the housing market. This process not only helps stabilize the mortgage lending environment but also promotes affordability by allowing lenders to maintain a continuous supply of funds for new mortgage lending.

In contrast, a mortgage bank primarily originates loans and may also service them, but does not necessarily purchase loans from other lenders. A mortgage broker acts as an intermediary between borrowers and lenders, helping to connect them without actually holding the loans themselves. Primary market entities are involved in the initial loan funding process, whereas the secondary market entities focus on the buying and selling of those loans after they have been issued.