Mortgage Broker Company - What Are Mortgage Backed Securities?

So we talked about Ginnie Mae, Fannie Mae and Freddie Mac. Well, once they purchase the “pools” they break them down into smaller ownership parcels. These are called “mortgage backed securities”. Each security represents a small ownership interest in the pool of which your loan is only one part which makes them a safe investment.

The mortgage backed securities are then sold on Wall Street to institutions or individuals looking for safe investments. Investments that earn a higher interest rate than treasury bonds. By selling the bonds, Ginnie Mae, Frannie Mae and Freddie Mac obtain new funds to buy new pools so lenders can get more money to lend to new borrowers - another cycle.

Simply - when you make your payment on your mortgage, the lender (servicer) gets to keep their part, and the majority goes to the investor then the investor passes on the majority of the money to the individual or institution in mortgage back securities.

The exception - loans over $333,700. (They do not meet Freddie Mac or Fannie Mae guidelines). These are called “non-conforming” loans. These are packaged into different pools and sold to different investors.