Final answer:
A loan that a mortgage banker has originated can be sold in the secondary mortgage market. This market allows financial institutions to buy and sell loans, providing liquidity and enabling banks to free up capital to originate more loans. The correct option is b.
Step-by-step explanation:
A lender may sell a loan that a mortgage banker has previously originated in the secondary mortgage market. Here, loans that were originally made in the primary loan market to borrowers are bought and sold among financial institutions. The purpose of the secondary mortgage market is to provide liquidity to the banking sector, allowing banks to free up capital by selling the mortgages they have originated, thus enabling them to make more loans.
Within this market, the value of the mortgage loan is measured by estimating what another party is willing to pay for it. By selling the loan in the secondary market, the originating bank can recover the value of the loan without having to wait for the full term of the mortgage to expire, which could be up to 30 years. This practice benefits both lenders, who can recoup and reallocate capital quickly, and institutional investors, who can invest in the steady stream of payments from the mortgages they purchase.
Hence, Option b is correct.