What is the usual procedure when a primary lender has exhausted its mortgage funds?

When a primary lender has exhausted its mortgage funds, the typical course of action is to sell mortgages to the secondary market. This process allows lenders to convert their mortgage assets into cash, replenishing their funds for new loans. By selling existing mortgages, lenders can generate liquidity, enabling them to continue financing additional home purchases and other real estate transactions.

The secondary market is vital for maintaining the flow of capital within the mortgage lending industry. It includes entities like Fannie Mae and Freddie Mac, which buy mortgages from primary lenders. This not only provides lenders with immediate cash but also helps stabilize the overall housing market by ensuring that credit remains accessible.

The other options do not align with standard industry practices. Holding onto mortgages and notes without action can lead to a liquidity crisis, while requesting more funds from the government is not a typical or sustainable approach. Issuing new loans without collateral goes against prudent lending practices, as it would involve significant risks for lenders and is not consistent with sound financial management.