The lending industry is fluid. Banks merge with other banks. Lenders fail and other banks absorb the name and assets of the failed institution. Your home mortgage is bought and sold on the lending market. Secondary mortgage lenders, not to be confused with a second mortgage loan on your home, buy loans from the lender offering you your original mortgage. By law, your bank must notify you of mergers, sales or the sale of your mortgage loan.
You have several options for searching for home mortgages. The largest commercial-mortgage lenders are banks. Mortgage brokers also offer loans, but the loans from this group come from a variety of sources. Brokers refer you to banks and take a profit from selling your loan to the lenders. Mortgage brokers also match you up with private lending money, if you can't qualify for a commercial loan or your home doesn't conform to the lender's approved list of properties. Private lenders also pay the broker a finding fee or a commission for locating your mortgage business.
Home Mortgage Market
Once your loan is in place, your mortgage broker and your lender have the right to sell your loan. Most times the sale isn't only for your single loan. Buyers like to invest in groups of loans packaged together by the lender. Some packages, also known as mortgage-backed securities, combine mortgage borrowers with adjustable-rate mortgages. Other packages put together existing mortgages from borrowers with fixed-rate mortgages. The secondary mortgage lender market buys and sells home mortgages from throughout the country, but packages may focus on home loans from one geographic region.
The Federal Home Loan Mortgage Corporation, known as Freddie Mac, and the Federal National Mortgage Association, popularly called Fannie Mae, help the secondary mortgage market by backing the funds for the mortgage loan packages. The Congressional Budget Office describes the federal government's role in the secondary loan market as the funding agent for mortgages made by the mortgage brokers, banks and thrifts. Mortgage loans backed by federal money are then sold to Freddie Mac, Fannie Mae, commercial banks, insurance companies and pension funds. After the financial market meltdown in 2008, the federal government established stricter controls over both Freddie Mac and Fannie Mae and tightened up the mortgage-backed security laws that some economists claim contributed to the mortgage sector's problems, including massive numbers of foreclosures. Other secondary mortgage trading regulations remain unchanged from the pre-meltdown period.
Mortgage Holder Impact
Most mortgage holders couldn't care less who holds the actual ownership of the original home loan, but the sales do have a direct impact on the homeowner. Lenders make rules regarding the type of homeowner's insurance, and these terms sometimes change with the new loan owner. When a loan is sold to a new lender, the terms of the mortgage might also change. For example, secondary mortgage buyer Bank of America shortened the grace period by a week for mortgage loan holders in 2010 when the bank purchased loans from another lender.
- National Association of Home Builders: What is the Secondary Mortgage Market?
- Congressional Budget Office: Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market
- CBS San Francisco: Consumer Watch -- Bank of America Changes Mortgage Grace Period
- Consumer Financial Protection Bureau: What's the Difference Between a Mortgage Broker and a Mortgage Lender?
- State of Wisconsin Department of Financial Institutions: Frequently Asked Questions -- Requirements For the Mortgage Banking Industry in Wisconsin
- Securities and Exchange Commission: Mortgage-Backed Securities
- Fannie Mae: Mortgage-Backed Securities -- Single Family
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