To get there you have to know the market. In this article I want to briefly explain the difference between a primary and secondary market regarding financial institutions.
A Primary market is the market that makes loans to homebuyers like you and I. They consist of Credit Unions, Mortgage Brokers, Mortgage Banks, Savings and Thrift Institutions and Commercial Banks. In our communities, the most visible are the large banks like Bank of America, Wells Fargo, Washington Mutual and Chase.
The largest mortgage company (which now has a bank) is Countrywide Home Loans with over 500 Branches nationwide but there are many others that are just as good and have wonderful reputations. Mortgage Banks are independent firms or subsidiaries of commercial banks that originate mortgages. They focus exclusively on providing mortgages and they do not accept deposits. They typically originate mortgages and then sell them to other financial institutions.
Mortgage Brokers differ from mortgage banks in that they do not actually make loans. Instead, they originate and process loans for a number of lenders. As a Mortgage Broker you can work with Bank of America, Washington Mutual and many of the others including the not so big lenders, to get the best product and program for your client.
Mortgage brokers are familiar with different loan products and can assist homebuyers with unique or less than perfect credit in locating financing. The scary part is that Mortgage Brokers are not regulated and some people hop in and out of this business because they think they can make tons of money quickly. They do not have to go by the strict rules and regulations of Mortgage bankers. Predatory Lending may be more prevalent so please be extremely careful when choosing one!
Secondary market institutions purchase mortgage loans originated by primary market lenders. The most significant purchasers of mortgages on the secondary market are Fannie Mae (The Federal National Mortgage Association) and Freddie Mac (The Federal Home Loan Mortgage Corporation). Fannie and Freddie are federally-chartered institutions owned by private stockholders. They purchase residential mortgages and turn them into securities which are then sold to investors.
By doing this, they supply funds to lenders so that they can serve the needs of more homebuyers. Fannie and Freddie set the requirements for the loans they buy and since the lenders want to sell their loans, they follow these requirements. One important requirement is affordability.
Because they are federally-chartered, Fannie and Freddie are required to help lower-income and underserved households and, as a result, have made affordable loan products a growing portion of the loans they purchase.
Ginnie Mae (the Government National Mortgage Association) is a government agency within HUD created by Congress to ensure adequate funds for mortgages made by lenders are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).
Ginnie Mae does not purchase or invest in mortgages. Instead it guarantees mortgage securities backed by FHA and VA mortgages.
Almost all new FHA and VA mortgages are securitized and sold as Ginnie Mae securities.
The secondary market allows lenders that originate residential mortgages to sell some or their entire portfolio to replenish their cash so that more loans can be made available.
So, thats it. Fannie and Freddie do Conventional Loans and Ginnie does your government.
They are in competition with one another for your dollars and are creating products daily for the benefit of us. Take advantage of these golden real estate opportunities but above all, whether your Ginnie or Freddie, cover your Fannie. See you next week.
|< Prev||Next >|