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.

If you had a piece of paper sitting under mattress that said
someone owed you money, that piece of paper would be of
little use to your immediate money needs now wouldn't it?
Well this is how the mortgage lenders felt adjustable rate mortgages when they held
the paper on mortgages they had made. The paper wasn't
creating big returns in a short time like they would have
wanted so they looked for a better way to create those type
of numbers, and do it for as long as they could.

The Secondary Market

Dollar signs appeared in the eyes of mortgage lenders as
they saw a new financial advantage on the horizon. Interest
rates were fluctuating and a way to monetize the mortgages
they had in portfolio quickly adjustable rate mortgages became apparent. The portfolio
mortgages would work harder if they were recycled through
the system to take advantage of rising mortgage interest
rates and new loan origination fees.

Circa late 1930's the secondary mortgage market took its
first breath. The secondary market allowed mortgage lenders
to use the mortgage notes they had sitting in portfolio to
increase the actual cash they had on hand to loan more
mortgage money.

Two Maes And A Mac

I'm sure you've heard the adjustable rate mortgages names Ginnie Mae, Freddie Mac, and
Fannie Mae but are you in the know on who they are? Well the
most important thing to know is not who they are but what
they are and what they have provided for Americans in terms
of making owning a piece of this wonderful land more
affordable for more of us.

These famous monikers are actually terms of endearment given
to the three most heavy organizations in the secondary
mortgage market. Called a family by most industry
professionals and they have adjustable rate mortgages proven themselves as cousins who
are bent on providing affordable mortgage products for
people all over this country.

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.

But don't worry because both the primary and secondary
mortgage market benefit from this arrangement. As it turns
out secondary players like Fannie, Freddie, and Ginnie are
specifically adjustable rate mortgages looking for investments to hold in portfolio
and are willing to pay cash to do so.

The dumb smart kid lesson gathered from this may be the fact
that when comes to mortgages as investments, waiting is not
an option for some when it is the only option for others.

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