After you buy a home, there are two main parties you’ll need to be aware of – your mortgage lender and your servicer.
Your mortgage lender is the bank or other financial institution that issued your mortgage. Your servicer is the entity that handles your home loan payments after closing. Sometimes these entities are the same, but other times, your lender will direct you to a third-party company that handles loan servicing for them.
A mortgage investor is the party that purchases mortgages from lenders. In most cases, these investors are actually government entities or government-sponsored enterprises that purchase your home loan so your lender is able to continue selling new home loans.
For instance, if your lender maxed out all of their funds this year on 30-year fixed-rate home loans – mortgages that would be paid off over 30 years – that would mean all of their investments would be tied up or on hold for three decades. In order to keep issuing new home loans, they sell mortgages to mortgage investors.
The sale of your loan doesn’t impact the collection of payments, so when your loan is sold, you shouldn’t notice a difference from a practical standpoint. You’ll keep making your payments to your servicer, which may or may not be your original lender.
There are two main types of mortgage investors that might pick up your home loan – government-sponsored entities and government agencies. We’ll explain the difference below.
Some mortgage investors, like Fannie Mae and Freddie Mac, are government-sponsored entities.
Fannie Mae and Freddie Mac have their own selection of conventional home loan products. Conventional home loans are mortgages that are backed by a private financial institution or investor instead of the government. The interest rates are similar to and sometimes lower than loans backed by government entities. There’s also a lot of flexibility in these products to match up with unique financial goals.
When either of these two entities purchases mortgages, they sell them to private investors as mortgage-backed securities. As you continue to pay on your home loan, Fannie Mae and Freddie Mac use this money to pay back the investors who purchased their securities.
When private mortgage investors invest with Fannie Mae or Freddie Mac, they are not guaranteed a profit. Mortgage-backed securities often consist of as many as 1,000 loans or more. Still, if enough people don’t make their payments, the return on investment can be substantially lowered.
Government Agencies
There are also government agencies that purchase mortgages that meet their investor guidelines. These agencies include the Federal Housing Administration (FHA), the United States Department of Agriculture (USDA) and the United States Department of Veteran Affairs (VA).
These agencies can all purchase home loans from lenders that meet their individual agency guidelines and resell them on the secondary market to private investors. This allows these agencies to receive instant funds from investors on your loan, which in turn lets them continue to purchase more mortgages.
The answer is fairly straightforward. Lenders typically sell loans for two reasons. The first is to free up capital that can be used to make loans to other borrowers. The other is to generate cash by selling the loan to another bank while retaining the right to service the loan.
Think about the typical 30-year loan term. If a mortgage lender has its money tied up in that transaction for the full 30 years, it will have less money to offer future mortgages. By allowing the mortgage to be sold to an investor, the lender now has the capital and money flow to continue to lend to other borrowers.
Why do mortgages get sold? Many lenders specialize in originating a mortgage, but often, this initial lender can't afford to wait for 15 or 30 years for you to pay it all back. By selling it, they no longer have to keep your debt on their books, and they can offer loans to other prospective homeowners.
People buy mortgage bonds because they offer a higher return than government bonds. They may also provide higher yields than investment-grade corporate bonds depending on the credit rating.
Because lenders use their funds when extending mortgages, they typically charge an origination fee of 0.5% to 1% of the loan value, which is due with mortgage payments. 1 This fee increases the overall interest rate paid—also known as the annual percentage rate (APR)—on a mortgage and the total cost of the home.
In turn, the investor receives the MBS, which it can hold and collect income on (from the mortgage payments) or later sell to another investor. Eventually, the MBS matures, and the investor is paid off. With this cash, the investor can then purchase another MBS or invest elsewhere.
Lenders sell mortgages so they have money to lend to other borrowers. Some sell loans to other financial institutions but keep the servicing rights. In this case, the customer deals with the same lender and sends the payments to the same place. It hardly affects consumers, since the point of contact doesn't change.
Lenders use the cash raised by selling mortgages to the Enterprises to engage in further lending. The Enterprises' purchases help ensure that individuals and families that buy homes and investors that purchase apartment buildings and other multifamily dwellings have a continuous, stable supply of mortgage money.
It provides liquidity to the mortgage market by buying loans conforming to certain standards from banks and other loan originators, thus enabling lenders to make new loans with the proceeds from the sale. Fannie Mae then issues securities backed by pools of these mortgages that it sells to capital markets.
The idea of your mortgage being sold may come as a surprise, but it's fairly common and will likely happen many times over the courses of your loan terms—whether it is 10, 15 or 30-years.
For investors, mortgage-backed securities have some advantages over other securities. They pay a fixed interest rate that is usually higher than U.S. government bonds. Moreover, they typically offer monthly payouts, whereas bonds offer a single lump-sum payout at maturity.
Lenders lose money on a loan when it's more expensive to produce the loan than the revenue it generates. To combat these losses, lenders started shedding personnel and lowering their origination costs.
What is the difference between an investor and a lender? An investor has to be accredited and is making an investment in the mortgages that we write.A lender is making a loan to the Fund. He has a lower level of risk and hence a lower level of return.
It's common for lenders to sell mortgages to reduce the amount of risk that's on their books. Once the lender sells the mortgage, they can earn back the money they loaned, enabling them to sell more mortgages.
In 2022 for the PGR total sample, average revenues were $11,386 per loan (311 basis points) and average expenses were $13,131 per loan (351 basis points). In 2022 for the total APR sample, average revenues were $10,815 per loan (342 basis points) and average costs were $10,878 per loan (348 basis points).
Federal banking laws and regulations permit banks to sell mortgages or transfer the servicing rights to other institutions. Consumer consent is not required.
The primary business of Freddie Mac is to purchase loans from lenders to replenish their supply of funds so they can make more mortgage loans to other bor- rowers. Freddie Mac then issues securities backed by pools of these mortgages that it sells to the capital markets.
Your account was transferred because your previous servicer sold your loan to us, your new servicer. It is very common for mortgage loans to be sold between servicers. Hundreds of thousands of loans change hands in this way every year.
Introduction: My name is Van Hayes, I am a thankful, friendly, smiling, calm, powerful, fine, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
