|
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.
|