Have you ever wondered where mortgage money comes from? Years ago, the money came from your local banker. If your credit was good, and the bank had the available funds, you had yourself a home loan, and you diligently made your monthly payment to that same bank.
These days, the majority of all conforming home loans begin the same way as they did years ago, but they now follow a trail that most often leads to three major institutions: Fannie Mae (Federal National Mortgage Association); Freddie Mac (Federal Home Loan Mortgage Corporation); or Ginnie Mae (Government National Mortgage Association), then on to Wall Street.
Please understand that there are many variation of this, and I’m speaking of standard conventional loans. Depending on a many circumstances, some loans follow different pathways.
We begin the process with a mortgage professional as we always have. We answer the questions, jump through the hoops, and sometimes feel our whole life is being reviewed, but all goes well, and we end up with a home loan. Now it’s here that the trail can take some turns.
If you placed your loan with a bank, it frequently appears that your loan is still with that bank, but in most cases the bank is simply “servicing
Where does the money go/come from on Wall Street? Foreign sources? China? Can’t some of the current housing appreciation be attributed to cheap rates financed by foreginers?
The most recent data I’ve found (and i know it’s old) regarding foreign investment in Mortgage Backed Securites is from a Goldman Sacks report dated Nov. 2005, siting 2003 statistics. In that report, it showed foreign investment made up only 5% of the total investment in MBS’s.
The appreciation is absolutly influenced by the cheap rates, but I’m just not sure how much foreign investment influence that. It’s a great question and I’m interested in knowing more.
Anything that keeps the market moving and homes selling, influences appreciation. Here in the Seattle area, I cannot confirm that rates are the key factor. The availability of zero down financing with closing costs rolled in, has been more of an influence in the last few years.
There is a saying in this business, that if the lowest priced housing moves, everything else will follow. If you can’t sell the $150,000 condo, then those people can’t move to the $300,000 townhome and those people can’t move up to the $450,000 single family and so on and so on.
Since many low end purchases are dependent on high rate seconds ranging from HELOCs to 8.65% to almost 12% seconds, low rates has not been the key. The ability to purchase with little to no money coming out of the buyer’s pocket, has been the key factor.
There was a nervous blip two years ago when Greenspan’s warnings sent a message to appraisers to be more conservative. If we run into a situation where properties will not appraise with closing costs rolled in, that will set in motion a chain of evernts, regardless of interest rates. If people need to have more cash to close, that will have a greater impact than interest rate fluctuations.
As always, my $.02 YMMV
Refinancing is the real game. Property pyramids have been built on property speculators creating secondary companies, whilst driving on one way street . Easy money ensures refinancing , which in turn syphons money down the pyramids to the genuine solid property companies, owned by these property gamblers which are situated at the bottom of their property portfolios. The top of the pile (their most recent purchases) is very speculative but that’s the speculators intentions .In theory banks, and everyone on the ladder think they are benefiting. But the real crisis is that the foreign purchasers of MBA’s are foreign GOVERNMENT backed companies. As property prices continue their incessant rise, the country becomes less and less competitive, it’s forced to pay its employess more and more to live! This in turn is driving the nations young to far off shores to seek affordable housing. When your hear of the trillions of foreign held securities I bet MBA’s are a massive chunk of their holdings. Its a recipe for a total social-economic disaster.
Grier,
Great explanation,I always thought it was a complicated structure. I never truly understood where the money was thank you.