Mortgages- The Portfolio Shift

It used to be common practice for mortgage lenders to make a loan and then hold on to the note until the entire mortgage was paid full. And as we know, a mortgage could be paid over a period of fifteen to thirty years, sometimes longer.

Having mortgage money tied up like that in an investment portfolio was useless, as it provided no immediate benefit to the mortgage lending institution. Mortgage lenders had to find a way to make that same money earn them immediate dividends, and a way to repeat the process indefinitely.

Mortgage Market For Secondary Players

Fluctuating interest rates caused mortgage lenders to take a second look at the mortgage notes they had tucked away in their investment portfolio. They discovered a way to reuse these mortgages in a way that would take full advantage of ever-changing loan interest rates as well as new and higher loan origination fees.

In the late nineteen thirties something called the secondary mortgage market came into existence. This market offered a way for home loan lenders to monetize their existing mortgage notes in a way that would provide tangible cash for them to use. From then on, mortgages would not have to been held in portfolio and could be turned immediately into cash.

Fannie, Freddie, Ginnie

Fannie, Ginnie, and Freddie. Of course we're familiar with these particular monikers but do we now exactly who these folks are? Maybe not who, but the real inquiry may be what they are and what they have done to manifest the American dream of owning real estate.

Probably the most recognized nick-names in the mortgage industry, these three are movers and shakers in the secondary mortgage market. Known collectively as members of the same family, these branches on this family tree have developed a reputation for making possible what necessarily wasn't so years ago.

These three players are the ones who make it possible for recycling the money from primary lenders and making sure cash returns to communities like yours so more loan can be made.

Secondary mortgage market players don't just do this out of the goodness of their hearts. In return for giving primary mortgage lenders a way to get immediate cash fast, secondary mortgage players receive a discount when they purchase portfolio notes and this allows them to bundle several notes as investments for investors.

It's amazing how the primary and secondary mortgage market compliment each other and it shows that holding on to paper may be the best for some but not the best for other people or organizations.