On the wholesale level there are three large publicly traded companies, Federal National Mortgage Association (called Fannie Mae in the industry), Federal Home Loan Mortgage Corporation (called Freddie Mac), and Government National Mortgage Association (called Ginnie Mae). There are also a host of other money sources like banks, insurance companies, and pension funds that buy mortgages. Since Fannie Mae and Freddie Mac buy close to 50 percent of the mortgages written, their underwriting standards are what the rest of the industry follows if they want to sell the loans they originate. You might say that the Fannie Mae/Freddie Mac combo is to mortgage lending what Microsoft is to computing. Fannie and Freddie package these loans into mortgage-backed securities that are sold to investors. The money from the sale of these securities enables them to continue buying mortgages from lenders. If you were to call your favorite stockbroker and buy shares of Fannie Mae stock, your investment would be backed by millions of home mortgages. This cycle is what gives homebuyers a plentiful and consistent flow of mortgage money at reasonable interest rates. Their track record over the past few decades is impressive in creating a good flow of mortgage funds at competitive interest rate that otherwise wouldn’t be possible.
Another corporation, Government National Mortgage Corporation, buys Federal Housing Administration (FHA) and Veterans Administration (VA) government guaranteed loans from lenders. These mortgages are also packaged and sold on the securities market, ensuring a continuing flow of funds for FHA and VA loans. In mortgage-speak, the wholesale mortgage industry is referred to as the secondary market. In addition to the big mortgage buyers mentioned above, many banks and other money sources buy or make mortgage loans for their own portfolios; this is called warehousing the loan.
Also, if a loan meets with Fannie Mae or Freddie Mac underwriting standards, it is called a conforming loan. If it doesn’t meet these standards, it is a nonconforming loan.
Another corporation, Government National Mortgage Corporation, buys Federal Housing Administration (FHA) and Veterans Administration (VA) government guaranteed loans from lenders. These mortgages are also packaged and sold on the securities market, ensuring a continuing flow of funds for FHA and VA loans. In mortgage-speak, the wholesale mortgage industry is referred to as the secondary market. In addition to the big mortgage buyers mentioned above, many banks and other money sources buy or make mortgage loans for their own portfolios; this is called warehousing the loan.
Also, if a loan meets with Fannie Mae or Freddie Mac underwriting standards, it is called a conforming loan. If it doesn’t meet these standards, it is a nonconforming loan.
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