Does this make sense? - Posted by Pete

Posted by GMann on January 08, 2003 at 23:52:45:

All conventional loans are sold to Fannie Mae or Freddie Mac. Fannie and Freddie are government sponsered agencies that pool all of the loans they buy from banks and mortgage companies and they in turn raise money (bond offerings) They make a spread between what they pay the bond holders and the interest rate on the note.

Fannie and Freddie do not service mortgages. Banks and mortgage companies can service the mortgage and Fannie and Freddie will pay them a servicing fee. I’m sure you have heard of someone saying their loan was sold, but in reality the servicing rights were just sold. Fannie and Freddie own the rights to the income from the mortgage interest.

To put it in perspective…TWO TRILLION DOLLARS in mortgages were funded in 2002. The only way to raise that kind of capital is from the bond market. It has been this way for decades, nothing new.

Does this make sense? - Posted by Pete

Posted by Pete on January 08, 2003 at 22:18:14:

Joe needs a loan to buy a house. Joe applies to a bank and is accepted. He has to mortgage his house. The bank then sells this mortgage to Fannie Mae to fund the loan. The bank makes money off of things like closing fees and administrative fees. Do Joes payments go to the holder of the mortgage? Does Fannie Mae sell the mortgage again?

Basically I don’t understand the whole concept of the secondary market as you can see.

If someone could help me within 24 hrs. It would be greatly appreciated!