Mortgages FYI:
As a general assumption people think that banks fund their own loans, service them and pocket all that cash! They look at their TIL when applying for a mortgage and see they borrowed $150,000 and are paying the bank back $450,000.00 over 30 years and think the lender is really sticking it to them and making tons of money.
Most banks/lenders are just the middle man for the true source of the funds. Sources like Fannie Mae Ginnie Mae and Freddie Mac are some examples of sources of funds for mortgages.
Here is how it works; You may have a loan which closes in the name of xyz bank and your monthly statement may come from xyz bank but behind the seen there is a lot of paper work flowing. This loan has been sold to a source like Fannie Mae or Freddie Mac who may be the funding source after closing. The lender xyz bank may retain the servicing of the loan and be the name on your monthly statement but that loan in reality has been sold to one of the big mortgage funding power houses.
The way mortgages are funded are simple, banks fund loans and then are packaged and sold to the secondary market, this market is what actually funds mortgages, the lender who funds the note will more often than not service that loan.
The funds behind the funding of these loans come from investors of mortgage backed securities.
In the past, mostof the mortgage backed securities were bought by foreign investors, the investors would commit to a term which paid a nice return of say 4.5%-5% but with mortgage rates so low foreign investors as well as U.S. investors for the most part have been investing elsewhere. The interst rates have just been too low to attract investors. The proof here is the billions of dollars the federal government pumped into the mortgage market to help keep rates low. Most Investors just are not attracted to 2.5% - 3.50% for their investment.
Once the market starts to run dry of investment monies then the interest rate paid to attract investors will need to be adjusted upward which means higher rates for everyone! The Government can't keep pumping money in the system for ever.
There are some smaller banks who fund their loans on depositors money but those lenders are usually harder to get financing from and limited to what they can lend since their source of funds is funded within.
Don't snooze and miss out of some great low rates, they won't stay around for ever. Refinance or Purchase www.LeoLends.com
Connecticut Mortgage Specialist - Leo Namiot www.LeoLends.com
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