Question 38

The secondary mortgage market buys mortgages from banks.

The secondary mortgage market primarily purchases mortgages from banks, which originate the loans to borrowers. This process allows banks to free up capital, enabling them to issue more loans.

A) retirement funds

Retirement funds typically invest in various assets, but they do not originate or sell mortgages. Therefore, they are not a source for the secondary mortgage market.

B) banks

This option is correct as banks are the main originators of mortgages and sell them to the secondary mortgage market. This transaction helps banks manage their liquidity and risk while providing capital for new loans.

C) insurance companies

Insurance companies may invest in mortgage-backed securities, but they do not originate mortgages directly for sale in the secondary market. Hence, they are not a primary source for this market.

D) the Treasury Department

The Treasury Department does not engage in the buying or selling of mortgages; its role is more about overseeing financial stability and fiscal policies. Therefore, it is not a participant in the secondary mortgage market.

Conclusion

The secondary mortgage market's primary function is to buy mortgages from banks, which is why option B is the correct choice. Other options fail to accurately represent entities involved in the origination and sale of mortgages, confirming that banks are indeed the central players in this market.