Why mortgages are sold?

The main reason is to allow lenders to afford to lend money to new homebuyers. It's a common practice to sell mortgages so that lenders can get more money to help finance additional mortgages. The process is cyclical and continues from there. Lenders sell mortgages to have money to lend to other borrowers.

Some sell loans to other financial institutions, but retain service 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 does not change. If paying off a loan costs more than the money it generates, lenders may try to sell the loan payment to reduce their costs.

The lender can also sell the loan on its own to free up money so that more loans can be granted. You may be surprised or even upset to receive a letter telling you that your mortgage is being sold to another financial institution. Therefore, this compensation may affect how, where, and in what order the products appear in the categories of advertisements, except where prohibited by law for our mortgage, home equity and other mortgage loan products. In general, mortgage originators make money on the fees charged to originate a mortgage and the difference between the interest rate given to the borrower and the premium that the secondary market pays for that interest rate.

However, mortgage-backed securities have offered higher returns than other low-risk bonds, such as Treasury bonds with comparable maturities. But they can earn even more by issuing a mortgage, selling it (and earning a commission), and then issuing new mortgages and then selling them. The dealers who work at these counters do all kinds of creative things with MBSs and comprehensive mortgage loans; the ultimate goal is to sell them as securities to investors. Selling mortgages converts longer-term, least liquid assets on the balance sheet into cash, the most liquid asset on the balance sheet.

Sometimes, banks simply sell the mortgage debt (the principal of the loan) and keep the mortgage servicing rights, which means that they continue to receive repayments from the borrower. Originators who accumulate mortgages before selling them usually hedge their mortgage portfolios against changes in interest rates. Until the mortgage was canceled, I continued to make my monthly payments to the MMB, which retained management rights, even though Ginnie Mae is the owner of my loan. For NerdWallet, Phil Metzger is a content management specialist who specializes in mortgages, home buying and homeownership.

However, depending on their size and sophistication, a mortgage originator may accumulate mortgages for a certain period of time before selling the entire package; they may also sell individual loans as they originate. While banks use their traditional sources of funding to close loans, mortgage bankers often use what is known as a deposit line of credit to finance loans. As is common for lenders to sell mortgages, don't be alarmed if they tell you that yours has been sold. The type of mortgage product they can invest in is largely regulated by the Office of Federal Housing Business Oversight.

On the other hand, the mortgage interest that the bank earns over the life of your loan takes decades to be collected.

Rosanne Pacana
Rosanne Pacana

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