In the "olden" days, when someone wanted a mortgage loan they walked downtown to the neighborhood bank or savings and loan. If the bank had extra funds laying around and considered you a good credit risk, they would lend you the money for mortgage loans from their own funds. It doesn’t generally work like that anymore. Most of the money for mortgage loans for home mortgage loans comes from three major institutions:

• Fannie Mae (FNMA: Federal National Mortgage Association)
• Freddie Mac (FHLMC: Federal Home Mortgage 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 mortgage loan. They do all the processing and verifications and finally, you own the house and now you have a home mortgage loan and you make mortgage payments. You might be making payments to the company who originated your mortgage loan, or your mortgage loan might have been transferred to another institution.

The company you make your payments to very rarely owns your mortgage loan. They are the servicer of your mortgage. They are called the servicer because they are simply servicing your mortgage loan for the institution that does own it. You see, what happens behind the scenes is that your mortgage loan got packaged into a pool with a lot of other mortgage loans and sold off to one of the three institutions listed above. The servicer of your mortgage loan gets a monthly fee from the investor for processing payments and taking care of your mortgage 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 mortgage 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 for mortgage loans. The entire system of originating mortgages, including wholesale lenders, mortgage brokers and mortgage bankers is designed so that servicers get mortgage 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 mortgage 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 mortgage loans (to service in their portfolio) and sell to those institutions, so they can get more money for mortgage loans, and so on….

This is the cycle that allows institutions to lend you money for mortgage loans.

Bookmark It

Hide Sites

Pages: 1 2 3