After the closing, the primary lender
may either hold the mortgage in its portfolio (along with other loans
it has made) or sell it in the secondary mortgage market.
When primary mortgage lenders sell loans
in the secondary market, they generally sell them as loans to an institution
like Freddie Mac. They then use the proceeds of the sale to make new
loans to other home buyers in their community.
Freddie Mac is one of the largest
investors in mortgages. As a major player in the secondary mortgage
market, they
buy mortgages that meet their underwriting and product standards,
package those loans into securities, and
sell the securities to investors on Wall Street.
The mortgages they purchase are bundled
or pooled together as mortgage-backed securities (MBS). Freddie Mac
guarantees timely payment of principal and interest to MBS investors
and finance these investments by issuing debt and mortgage securities.
This makes the MBS more liquid than individual mortgages. Investors
value Freddie's guarantee on the MBS, and therefore are willing to
accept a slightly lower yield as the funds pass through to them.
In addition, Freddie provides more funds
to the primary mortgage market through portfolio investment. By investing
in mortgages,they attract funds for primary market mortgage lenders
from investors who would not otherwise invest in the U.S. residential
mortgage market, or who might be averse to prepayment risk.
Freddie Mac's use of funds
Freddie Mac uses the funds from sales
of these securities sales to purchase more loans from primary lenders.
In this way, they are constantly replenishing the pool of funds available
for new loans, which allows primary lenders to use the cash they get
from Freddie to originate new mortgages. This makes the mortgage process
fast, convenient, and affordable.
The supply of cash the secondary mortgage
market makes available to lenders through this process drives down
mortgage rates by as much as one-half percent - saving the homeowner
with a $100,000 mortgage around $12,000 in interest over the life
of a 30-year loan. That savings helps make home ownership affordable
for more families and individuals than would be possible without the
secondary mortgage market. As a result, home ownership is a reality
for many American families, and not just a dream. Take part in the
dream now by applying with Allie Mae
