In the past, getting a home loan was simple. You’d visit your local bank, and if they had money to lend and you were a good risk, they'd fund the loan themselves. Today, the process is much more complex—and much more connected to Wall Street.
Most home loans today are funded through secondary market institutions like:
Fannie Mae (FNMA) – Federal National Mortgage Association
Freddie Mac (FHLMC) – Federal Home Loan Mortgage Corporation
Ginnie Mae (GNMA) – Government National Mortgage Association
How the Modern Mortgage System Works
You apply for a mortgage through a lender. They process your application and fund the loan.
You make monthly payments—usually to the original lender or a servicer (a company that collects payments on behalf of the loan’s actual owner).
Behind the scenes, your loan is likely bundled with thousands of others and sold to Fannie Mae, Freddie Mac, or Ginnie Mae.
These institutions then turn those bundles into mortgage-backed securities (MBS)—investment products sold to individuals, retirement funds, and Wall Street investors.
The cycle continues, as the money raised from selling these securities goes back to lenders to fund more home loans.
What Is a Loan Servicer?
You might be making payments to the company that originated your loan—or to someone else entirely. That’s because your loan may be transferred to a new servicer, but this doesn’t mean your loan was sold again—just the right to manage it. The servicer earns a small fee (usually around 0.375%) for collecting your payments and managing your account.
What About Jumbo Loans?
Loans above a certain threshold—currently $333,700—are known as jumbo loans because they don’t meet Fannie or Freddie’s “conforming loan” limits. These loans follow a similar process but are sold to private investors instead of the big three institutions.
Why It Matters
Your mortgage payments may pass through several hands before reaching the true investor.
Your loan may be serviced by multiple companies over time.
You might already be invested in mortgage-backed securities through a 401(k), mutual fund, or pension plan—meaning you’re indirectly involved in the cycle that helped fund your own mortgage!
In Summary:
The modern mortgage system is powered by mortgage banking, which buys, packages, sells, and services home loans behind the scenes. This cycle is what allows lenders to keep offering new loans—and what keeps the housing market moving.
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