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Unformatted text preview: arket because loan volume had increased greatly. A slow rate of new deposits, typically referred to as “rate of savings inflow,” was not sufficient to take care of the higher demand for loans. In the 1980s, institutions found their cost of acquiring deposits increasing dramatically. They also experienced a major outflow of deposits due to higher rates offered by competing investments, such as mutual funds and certain bonds. With less money to support the demand for loans, the institutions have increasingly turned to the secondary market for funds. One industry that has always operated in the secondary mortgage market is mortgage banking. Mortgage bankers do not have deposits to lend; therefore, they have to sell the loans they make to other investors. They operate as a conduit between the primary market and the secondary market. In the 1990s, almost all mortgage lenders operated in the secondary market to maintain liquidity and to stabilize the supply and demand for mortgage money. ADDITIONAL SOURCES FOR THE SECONDARY MARKET
On a nationwide basis, deposits in institutions are not sufficient to meet the demand for mortgages. Therefore, to obtain additional funds for mortgages, lenders have had to revert to the capital market. The capital market is the market for long–term investments, which include government and corporate bonds as well as mortgage loans. Some of the investors in the capital market buying long–term investments are insurance companies, trusts, pension funds, and individuals. Dynasty School (www.dynastySchool.com) 7-11 REAL ESTATE FINANCE HOW ARE MORTGAGE FUNDS SHIFTED?
There are a number of methods used in the marketplace to shift funds to where they are needed. One method is lenders selling loans to each other. For example, a savings bank in California may have more demand for loans than it can meet. A savings bank in Florida may have the opposite problem. The solution is to have the California savings bank sell loans to the Florida savings bank. The California savings bank would...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10