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Updated about 5 years ago,
How do Lenders and GSEs Make Money Selling Mortgages
Hi everyone,
I'm trying to get a better understanding of the mortgage system and all the players in it. To my understanding, a lender issues a mortgage to a homebuyer. They give the buyer a sum of money and receive a mortgage with the house as collateral. Doing this too often would tie up most of the lenders capital, so the lender sells the mortgage to Fannie or Freddie. They then sell the mortgages again on the secondary market in the form of mortgage backed securities.
I'm cloudy on how the lender makes a profit from this model. They don't profit from the interest, since the loan is sold to Fannie or Freddie . Do they sell the loan for a markup, or profit from the administrative and origination fees? And how does Fannie and Freddie make a profit? Why doesn't the lender sell the mortgage as a security themselves and cut out the middle man?