Where Does the Money Come From
for Mortgage Loans?
The
Olden Days
In the "olden" days, when
someone wanted a home loan they walked downtown to the neighborhood bank or savings &
loan. If the bank had extra funds laying around and considered you a good credit risk,
they would lend you the money from their own funds.
It doesn’t generally work like that anymore. Most of the
money for home loans comes from three major institutions:
-
Fannie Mae (FNMA - Federal National Mortgage Association)
-
Freddie Mac (FHLMC – Federal Home Loan Mortgage
Corporation)
-
Ginnie Mae (GNMA – Government National Mortgage
Association).
This is how it
works now:
You talk to practically any lender and apply for a loan. They
do all the processing and verifications and finally, you own the house and now you have a
home loan and you make mortgage payments. You might be making payments to the
company who originated your loan, or your loan might have been transferred to another
institution.
The company you make
your payments to very rarely owns your loan. They are the
"servicer" of your mortgage. They are called the servicer
because they are simply
"servicing" your loan for the institution that does own it.
You see, what happens behind the scenes is that your loan got
packaged into a "pool" with a lot of other loans and sold off to one of the
three institutions listed above. The servicer of your loan gets a monthly fee from
the investor for processing payments and taking care of your loan. This fee is usually only 3/8ths of a percent
or so, but the amount adds up. There are companies that service over
billions of dollars of home loans. Three-eighths of a
percent on a billion dollars is a tidy income.
In fact, mortgage servicing is where lenders make the real money.
The entire system of originating mortgages, including wholesale
lenders, mortgage brokers and mortgage bankers is designed so that
servicers get loans into their portfolio -- hopefully at a "break
even" level -- but often at a loss. Mortgage servicing is
where they make their profit.
Once your loan has
been packaged into a pool and sold to Fannie Mae, Freddie Mac, or Ginnie Mae,
the lender gets additional funds so they can make more loans (to
service in their portfolio) and sell to those institutions, so
they can get more money, and so on....
This is the cycle
that allows institutions to lend you money.
copyright
1999 by Terry
Light and RealEstate ABC, modified in 2000 and 2002 |
