Who Purchases Home Mortgage Loans?

There are lots of buyers – investors we call them – ranging from individuals to large banks, trusts and insurance companies who want or must invest in safe instruments that produce income.

By far the largest group of investors are individuals, folks who may live right next door. If your credit was good at the time your loan was underwritten, it is likely that your lender pooled your loan with other similar loans and then the pool was turned into an investment security – securitized – and made available to investors through major secondary markets like Ginnie Mae; also known as the Government National Mortgage Association. A share of each pool – known as a pass through certificate, can be purchased from your investment broker in face denominations of $25,000. The actual price paid will vary depending on several factors such as the nominal interest rate offered by the pool, the age of the pool and, if you are purchasing an older certificate, how much of its face value has already been amortized. Talk to your investment broker to have all of your questions answered.

Other mortgage investors are banks, especially those that specialize in mortgage servicing, like Wells Fargo Bank. There are many of these throughout the nation. Banks, insurance companies, mutual funds and other institutional investors purchase great quantities of mortgage-backed pass through certificates because of their inherent safety and marketability. All investors must be aware that these securities pay monthly income equaling a proportionate share of the pool’s monthly payoff of principal and interest. This means that over the years an investor will receive principal back as part of the monthly payments – just like a mortgage payment - so that when the certificate matures, the principal has already been returned to the investor. There will be no lump sum return of principal at the time of maturity, as there is, for instance, with a Treasury bond.

By Jay Best