- Where does mortgage loan money come from -

:: How Do Lenders Loan You Money?

In The Beginning

In the distant past, when someone needed money to purchase a home, they would simply walk to the nearest bank. If the bank thought that you weren’t a big risk, they would use their extra funds to loan you the money.

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The Present

Unfortunately, things aren’t that easy these days. A majority of the money that is used for home loans comes from three institutions: Federal National Mortgage Association (FNMA), or Fannie Mae; Federal Home Loan Mortgage Corporation (FHLMC), or Freddie Mac; and Government National Mortgage Association (GNMA), or Ginnie Mae.

Nowadays, pursuing a home loan requires you to contact a mortgage lender, presumably by phone or via the Internet, and apply for the loan. They will process all of your information, verify that you meet all requirements, and grant you the money. Once you own the house, you will most likely be making payments to this institution. However, the institution to which you make payments typically does not own your loan. They simply service your loan for the institution that does own it. For the most part of one the three aforementioned institutions will own your loan, and your lender will service it, receiving monthly dues from the investor for caring for the loan.

Although this monthly fee is only about three-eighths of a percent, the money adds up. Mortgage servicing is a lucrative business in which lenders make a majority of their profit. Once your California mortgage loan is sold to Fannie Mae, Freddie Mac, or Ginnie Mae, the lender receives additional funds so that they are able to grant more loans and sell them to one of the three institutions. This is an ongoing cycle that generates a great deal of cash flow, allowing the lenders to give you more money.