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Kissinger Bigatel & Brower Realtors

State College, Pennsylvania
Real Estate Team
814-571-8204
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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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Kissinger Bigatel & Brower REALTORS® 
1612 N Atherton St
State College, PA 16803
Phone: 814-571-8204
Email: pchiarkas@comcast.net
Brokerage Phone: 814-238-8080

Testimonials

After having been "assigned" a real estate person for our first showing, we decided going forward to go with Krissy Bonson. We have had a personal relationship with her in the past and we will never regret going with her. Krissy is the definition of professionalism and will be prompt and honest and  will go the extra mile for you all the time. She tried her best to work with our schedule and when we did finally have an offer accepted, she answered all of our questions and walked with us every step of the closing process. I cannot imagine anyone who could have done a better job for us than Krissy. I would highly recommend her to anybody considering someone to work with either buying or selling a property ANK9
Peter and his team helped us buy the perfect home for our family. They listened carefully to what we were looking for in a home and guided us towards those homes and locations that were suitable. When we had questions they responded very promptly and thoroughly. We're very satisfied with our  experience! kgphillips4
Krissy was great to work with throughout the entire home buying experience. She listened and provided great feedback on houses that we visited. When we got to the buying process she was very positive and knowledgeable with everything. She never left us with a feeling of doubt and was always open  and honest with us. I would highly recommend her to anyone buying a new home in the area ChazRobison
Peter and Krissy were amazing to work with. We had a few "hiccups" in the sale of our house (not due to them) but they continued to do what they said they would and they got our house sold. dakingemt
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