Most money from home mortgages comes from three major institutions: Fannie Mae (FNMA), Freddie Mac (FHLMC), and Ginnie Mae (GNMA). Once they purchase your loan, it gets put into a pool of loans, which then gets sorted into smaller ownership parcels. These smaller parcels are known as mortgage-backed securities. And because each parcel or security represents a diversified pool, your risk is much less than it would be with a single investment.
Mortgage Investments
Mortgage backed securities are sold on Wall Street to institutions or individual investors. These securities usually earn a higher interest rate than treasury bonds and thus tend to be more popular. By selling the mortgage-backed securities, the institution is able to obtain new funds, which in turn allows them to buy more mortgage pools. And so the cycle continues from loan to loan just like this.
Refinancing Options
Now that you are ready to refinance your home, do some research. Check out who will service your mortgage. You may notice that at times, your loan gets transferred to another company. That doesn't mean your loan was sold, however the right to service your loan was. What is more important is that you check out all your options, including interest rates, mortgage lenders, types of loans offered, and of course, lender reputations. You'll be glad you did!
