Few mortgages are actually held by the bank or the company that funds them. Over the past ten to fifteen years, investors on Wall Street have increased their appetite for higher yield products. With this appetite grew a desire for riskier loans that companies package and sell in pools known as mortgage-backed securities. MBS’s are sold on the open market and are traded much like any other bond, with the expectation that people with mortgages will pay monthly on their obligations, netting an expected yield for the end investor.

As investors realized these loans were not performing, they lost their appetite. Now you have mortgage companies with loans they were planning to sell, but no buyers. They had funded these loans on credit and must sell them to stay in business, even if they are forced to sell at a discount. Many mortgage companies did not have the money to take such losses and have since closed their doors.

The good news is that regular conventional loans are still traded through Fannie Mae and Freddie Mac and those markets remain relatively active. So, while some people needing higher risk loans may not be able to find them, the vast majority of potential borrowers are still in good shape.

Stephen Katz

Katz Mortgage Team