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selling mortgages

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crapandgarbage
New Contributor

selling mortgages

what banks or mortgage companies have a habit of selling off loans to other companies?
does this help or hurt home owners?
Message 1 of 8
7 REPLIES 7
Anonymous
Not applicable

Re: selling mortgages

all of them.
Message 2 of 8
DallasLoanGuy
Super Contributor

Re: selling mortgages

some keep a higher percentage. but they all trade.
 
it HELPS borrowers. it gives the banks a way to spread risk and other dynamics that i wouldnt care to explain about the economics of the secondary markets.
 
 
Retired Lender
Message 3 of 8
Anonymous
Not applicable

Re: selling mortgages

Well, I'm not sure if it helps the borrowers... but it certainly is a big business for the lender
Message 4 of 8
DallasLoanGuy
Super Contributor

Re: selling mortgages



Physicist wrote:
Well, I'm not sure if it helps the borrowers... but it certainly is a big business for the lender


i am sure that it helps borrowers. and indeed it is big business for the banks.... they have to mitigate their risk in order to give the best rates. nothing sinister about that
 
when a bank sells your loan, you are not affected(except you send payment somewhere else).
 
Retired Lender
Message 5 of 8
Lel
Moderator Emeritus

Re: selling mortgages


@Anonymous wrote:
Well, I'm not sure if it helps the borrowers... but it certainly is a big business for the lender




It definitely helps borrowers. Do you think the banks have an unlimited supply of cash from their depositors to lend to home buyers? Selling mortgages to investors frees up the cash to make new loans. Yes, yes, yes, yes, this means that banks can be leveraged to the hilt, and yes, this is what contributed to the so-called subprime mess, but without this practice then money will no longer be available for new homebuyers.

Under more favorable market conditions, this practice helps everybody, but everybody also has something at stake. The sellers are helped, because it creates a more liquid housing market that allows them to sell their homes, but if interest rates go up to make the loans more attractive to MBS investors, then there is downward pressure on their selling price. The banks are helped, because they are able to make more loans and collect more interest, but if they make a lot of unwise loans then they could default on their obligations to investors. The investors are helped, because they get what they hope will be a good return on their investment, but if the banks default then they're out a lot of money. The retirement plans are helped, because many invest in MBSes and REITs, but they can lose money just like the big investors. The home buyers are helped, because they have access to money from the lenders, but they pay for it in the form of possibly higher interest rates and higher home prices because the housing market is more liquid.

TANSTAAFL: There ain't no such thing as a free lunch.
Message 6 of 8
Lel
Moderator Emeritus

Re: selling mortgages

For the record, my previous post is just a nutshell interpretation of the mortgage market as I understand it. I am not an expert but I have spent some time trying to understand the recent credit market crisis. Dallas, Shane, Brian, and all the mortgage experts here would be able to clarify and correct anything that I have said. I would personally welcome the additional education.
Message 7 of 8
BrianB_The_Loan_Professor
Valued Contributor

Re: selling mortgages

Lei your description pretty much sums it up. The investors are not in the busines sof lending money thats what the banks do. They then bundle and sell to investors. In the rising markets there were investors from all over the worls buying mortgage backed securities. That has scaled back some since the lenders got very loose with their guidelines and many investors ate up loans that cost them money. Like any investment though there is risk.
There is no doubt that the banks make money selling loans. They collect a premium from the investor. The investor then makes their money on the interest. As they pay off (refi or sell) the investor will buy new bundles of loans. The buyers have been very tight (who can blame them) lately and the result is a solid set of guidelines for getting a mortgage.
The one down side with this is the self employed borrower who is afforded great tax incentives for being an entrepeuner is suddenly unable to qualify for a loan unless they bypass those tax incentives and show all income. That is what was trying to be resolved. As the guidelines were written to allow for stated income and other programs the business of selling loans took off like never before.
This caused a false security that then inflated home values. The banks would give anyone a loan that had a job or a credit score when prices were going up. Not now.......
 
Ok thats my 2 cents
B
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Brian B The Loan Professor
Mortgage Banker - offering FHA, VA, USDA , and Conventional mortgages in all 50 states -

If I do not respond to a follow up question please feel free to contact me directly
Message 8 of 8
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