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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).
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.
 The
Rest of the Cycle - Mortgage Backed Securities
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to Mortgage Articles & Advice
copyright 2000 by Terry Light and
RealEstate ABC
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