After you have applied for your loan, it is placed in a loan pool with many of other peoples’ loans as well. These loan pools are then purchased by various firms, such as the Fannie May Foundation. The mortgage pool is then split into smaller ownership segments, which are known as mortgage backed securities. These securities do not necessarily have to do with your loan specifically, but rather a whole segment of loans which your loan falls into. This makes at a very safe and secure investment idea.

These securities are sold on Wall Street to anyone looking for a reasonably stable investment at a higher interest rate than bonds or other securities. Selling these securities institutes are able to acquire the money necessary to purchase new loan segments and allow lenders to earn more money and lend to more borrowers.

Your loan payments are sent to your loan servicer, who only is able to keep a tiny part of your payment before it is given back to investors. Investors then give the payment to investors who have invested in these mortgage securities.

The purchasing and selling of your mortgage and mortgage securities is known as mortgage banking and this makes up a large majority of the mortgage industry.

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