Major mortgage companies have gone out of business entirely because they could not sell a large block of their loans on the secondary market. As a result, salability is an enormous concern and potential risk for every mortgage company.
Mortgage banks fund loans with large warehouse lines or lines of credit. They then sell the loans on the secondary market to other “investors” that either resell the loans or aggregate them and turn them into mortgage-backed securities.
But investors will not buy loans from mortgage banks unless they are 100% compliant – with underwriting guidelines, all regulations, and TRID. No matter how perfect a borrower is and how strong a loan is, it cannot be sold unless it is 100% compliant. There are no exceptions.
This is important to understand because strong borrowers ask us to make exceptions all the time, as do Realtors.
When mortgage banks get stuck with too many non-compliant, non-salable loans, they go out of business.
Salable Loans On The Secondary Market
Mortgage lenders make money by selling their loans to “investors” on the secondary market for a premium/profit.
For example, if we fund a $500,000 loan today at 3.75%, we might be able to sell that loan to an investor on the secondary market for $508,000.
That extra $8,000 of premium is our “gross profit.” Our “net profit” might be as little as $1,500 after netting out our closing cost credits, loan-related fees (credit reports, software fees, etc.) and, labor costs.
Questions? Keep In Touch With JVM Lending
If you have questions about the homebuying process or how loan salability and the secondary market works, contact JVM Lending. Our expert Mortgage Analysts and Client Advisors are available 7 days a week to answer questions and guide you through the homebuying process.
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