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Where Does the Money Come From for Mortgage Loans?

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 lying 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:

You talk to practically any lender and apply for a loan. They do all the processing and verifications and finally, you own the house with a home loan and regular 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 institution where you mail your payments is called the servicer, but most likely they do not own your loan. They are simply servicing your loan for the institution that does own it.

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 servicing 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 a billion dollars of home loans and it is a tidy income.

At the same time, whichever institution packaged your loan into the pool for Fannie Mae, Freddie Mac, or Ginnie Mae, has received additional funds with which to make more loans to other borrowers. This is the cycle that allows institutions to lend you money.

What Freddie Mac, Ginnie Mae, and Fannie Mae may do after they purchase the pools is break them down into smaller increments of $1,000 or so, called mortgage-backed securities. They sell these mortgage-backed securities to individuals or institutions on Wall Street. If you have a 401K or mutual fund, you may even own some. Perhaps you have heard of Ginnie Mae bonds? Those are securities backed by the mortgages on FHA and VA loans.

These bonds are not ownership in your loan specifically, but a piece of ownership in the entire pool of loans, of which your loan is only one among many. By selling the bonds, Ginnie Mae, Freddie Mac, and Fannie Mae obtain new funds to buy new pools so lenders can get more money to lend to new borrowers.

And that is how the cycle works.

So when you make your payment, the servicer gets to keep their tiny part and the majority is passed on to the investor. Then the investor passes on the majority of it to the individual or institutional investor in the mortgage backed securities.

From time to time your loan may be transferred from the company where you have been making your payment to another company. They aren’t selling your loan again, just the right to service your loan.

There are exceptions.

Loans above $333,700 do not conform to Fannie Mae and Freddie Mac guidelines, which is why they are called non-conforming loans, or “jumbo” loans. These loans are packaged into different pools and sold to different investors, not Freddie Mac or Fannie Mae. Then they are securitized and for the most part, sold as mortgage backed securities as well.

This buying and selling of mortgages and mortgage-backed securities is called mortgage banking, and it is the backbone of the mortgage business.

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BUDDY HARPER TEAM REALTY
5130 Wilkinson Blvd.,
Gastonia, NC 28056
Licensed NC & SC
Phone: 704-879-7155  

Fax:      704-879-7157
Email:bharper1@carolina.rr.com
Direct:  704-747-4016

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Stacey and I had a wonderful home buying experience working with Christyn Denton. Her knowledge of the Belmont area; her understanding of our home wants, needs and desires; and her professionalism were excellent. We had to find something in a short period of time, and she helped to take away our stress during the process. We highly recommend Christyn for your home buying needs. Sincerely, Mike & Stacey Andrea
Christyn, "I just wanted to take a minute and thank you for all the hard work and effort you put forth in our recently ratified contract. Your professional manner and commitment undoubtedly contributed to the successful conclusion to you or clients offer. If more agents were of your caliber our business would be so much more enjoyable." Tim B
Buddy, We want to thank you for the Excellent service you gave to us in finding our "Dream Home"! We appreciate all the time you spent in negoiations and getting us the best price on the house! Our best regards, Mike & Karen Worrell
Buddy, Thank you for helping us to sell the Stanley house, we really appreciate your hard work and friendship. Jeff & Emily
Buddy, We want to thank you for all your hard work that you did in finding a house for us! We cannot tell you how much we appreciate all the time and effort you put into us! We miss you already. Chan & Natalie
Buddy, I can't tell you how appreciative I am of all you did to help me. I must say, you have made me change my mind about realtors and their integrity. I certainly am convinced of yours! So thanks for all you do and for who you are. May God bless you! M. Hayes
Buddy Thank you so much for all your hard work to help us buy our first house! We really appreciate you going above and beyond for us. Thanks again! Ryan & Lisa
Buddy, thank you so much for all of your help in the past several months! You have been a God send, and we couldn't have done it without you! Thank you again, The Devers
Dear Buddy, Not everyone can do what you do. But anyone can see that what you do makes a wonderful difference. Thank you for your involvement and commitment in finding our home. The Green's
I appreciate everything you did for me. I feel like you went above and beyond and I'll never forget it. Thank you! I love my new home, it's perfect. Thank you again for everything! Sincerely, C. Phipps
We would like to thank Buddy Harper for all the time he took with us while we looked at condos all over town. He's like the Energizer bunny, he never runs out of power. He listed our house to sell on Thursday and we had a contract on Saturday. If you are even thinking of selling or buying you need to call the Buddy Harper Team Realty for results! Jimmy and Sandy Carr
Thanks for all your help in making our "dream home" a reality. We really appreciated that you went the extra mile to get us the best price for our home. You are truly a professional. Grant & Tammy Field
In all our dealings with Realtors over the past eight years, we have never met anyone as helpful and energetic as you have been. Without hesitation, we would highly recommend your service to anyone who is looking for an experienced Realtor who cares about getting things done and doing them right! Thanks for taking such good care of us, we couldn't have done it without you! Tisha Jackson
Thank you so much for taking the extra effort to make our first home purchase successful. You were there guiding us through all the crucial and important steps! You really listened to what we wanted in our home and you found exactly what we were looking for - at an amazing price! If we ever outgrow this home, we'll definitely be calling you! Ben and Catherine Hoersch
You made buying a home so easy for my wife and I. We were grateful for how much patience you used in answering all of our questions and taking us to look at so many houses. You never pushed us into looking at something we were not interested in. We strongly recommend you to anyone looking at buying a new home. Matt & Jennifer Keepes
Thank you so much for all you have done for us to make this so easy and stress free. Also, thanks for taking care of all the additional things that had to be done. Looking forward to seeing you soon. Tom & Carol
John and I want to thank you so much for selling our house for us. Thank goodness, we can sleep at night now. We appreciate everything you did for us! John & Robin
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