Back to Table of Contents

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.

Back to Table of Contents

Thank you for visiting today. If this is your first visit, take your time and look around. We have plenty of information and resources available to you. If you are a return visitor, thank you. We would love to hear from you and tell you how we can serve all your real estate needs.

Tom Scrocco And Randy Isaacs
Realtor - Associates
Douglas Elliman Real Estate
Palm Springs & Beverly Hills
 PLEASE CALL US ANYTIME:
Los Angeles 310-259-7355 
Palm Springs 760-656-8751

Info@TomandRandyProperties.com
BRE: 01245433, BRE: 01252713

Testimonials

It is a pleasure to recommend the exceptional real estate services of Randy and Tom, two of the most professional and adroit real estate agents with whom we have been lucky enough to work. Having seen their name while driving through the city of Palm Springs, we knew of their services but it was when we received a brochure in the mail from Randy and Tom, describing another home they recently sold, that we felt they would be a perfect fit for us. The brochure was the epitome of elegance, from the beautifully articulated descriptors to the superb photography to the high-quality paper stock. After interviewing them and a few other real estate agents, we knew for certain we would be in excellent hands with Tom and Randy due to their luxury real estate experience in working with clients in the Palm Springs area, extensive knowledge of the market and their determination to achieve outstanding results. Randy and Tom never disappointed. Phone calls and emails were immediately returned, showings took place quickly, negotiations with the buyers intelligently and fairly managed, and the deal meticulously completed. If we ever should move to the Palm Springs area again, Randy and Tom will be our surefire choice in real estate agents. Sincerely, Lawrence Greifer President Luxury Management Group
From our first meeting Tom and Randy presented a perfect combination of professionalism and personal warmth. Their knowledge of the real estate business is comprehensive, and their concern for my particular needs was exemplary. They guided me through the entire process in language that made things clear to me, and through the entire process to the closing of escrow were available with expert advice and instructions. I cannot recommend them highly enough. C. Steven Smith, Producer
Randy and Tom- “It was a pleasure doing business with you. You made a difficult situation easy and painless! And we couldn't be happier with the price you obtained. Very good job!! We've already recommended you once and will certainly do it again. You were professional, caring, understanding and supportive. We thank YOU from the bottom of OUR hearts! Thank you for getting the best deal for us, including the 60 day stay. We could not have asked for more!” David and Rachelle, Producer
Tom/Randy/Cameron: Thank you all for handling the sale of my parents house in such a professional manner. The Escrow went extremely smoothly without any hitches at all. The personalized attention and advice I got throughout the entire process was second to none.You guys truly are the best. When the time comes for me to sell my own property, I will definitely know who to call. A special thanks to Randy for listening to and working with me through all the “family drama” regarding the sale. Thanks again. Cheryl Marlowe, Traffic Manager KTLA
Tom and Randy...Thank you for the BRILLIANT job you did selling our duplex!...You two possess a unique combination of razor-sharp professionalism and comforting human warmth. You were the best advocates anyone could ever want, and you obtained a better sale than we could ever have imagined. Kristin and Patrick
View All

2018 DOUGLAS ELLIMAN REAL ESTATE. ALL MATERIAL PRESENTED HEREIN IS INTENDED FOR INFORMATION PURPOSES ONLY. WHILE, THIS INFORMATION IS BELIEVED TO BE CORRECT, IT IS REPRESENTED SUBJECT TO ERRORS, OMISSIONS, CHANGES OR WITHDRAWAL WITHOUT NOTICE. ALL PROPERTY INFORMATION, INCLUDING, BUT NOT LIMITED TO SQUARE FOOTAGE, ROOM COUNT, NUMBER OF BEDROOMS AND THE SCHOOL DISTRICT IN PROPERTY LISTINGS SHOULD BE VERIFIED BY YOUR OWN ATTORNEY, ARCHITECT OR ZONING EXPERT. EQUAL HOUSING OPPORTUNITY 

Equal Housing OpportunityMLS membershipREALTOR® certification