just wondering how much money is made when a lender or mortgage banker funds a loan , and then immediately sells it in the secondary mortgage market ? do they make like a point or something when selling to the secondary market ? i figured someone on ET must have been in the banking industry in their day
Yes, The secondary market works this way: Banks bundle a group of loans and sell them in the secondary market making several % (points) unless they keep the loans in house (in which case they make their money on the interest. However, most mortgages are sold to Fannie Mae, Freddie Mac, big pension funds, insurance companies, etc.) Brokers and Retail Mortgage lenders go through wholesale lenders (who bundle and sell larger blocks in the wholesale market). The majority of loans end up on the wholesale market no matter if the mortgage was originated from a bank, retail lender, or broker. The big difference between these groups is that banks make more on each loan since they do not have to utilize a middleman (wholesale lender) who has the ability to bundle enough loans to sell in the required size blocks on the wholesale market as well as the warehouse line of credit that allows the to fund loans in their own name. Most if not all large banks have wholesale departments that brokers and other smaller players utilize. An average corespondent lender and broker makes +/- 2 to 4% on their total loan volume. Any lender (wether bank or large mortgage operation) makes more than that that since they do not utilize a wholesaler (in fact many times they are a wholesaler in addition to being a retail originator). This is why it makes sense to sell the loans, you make more when you free your available $ to make new loans.