Back to Mortgage Basics!

Did you ever wonder where the banks get all the money to lend for homes. Lets think about this a minute. Statistically about 68% of Americans are homeowners. The average home price is about $170,000. So, how much money is that? $161,840,000,000,000 – about $161 trillion dollars. Now, there are a lot of assumptions I’ve made in coming up with these numbers. I assumed a single family home with two parents etc. etc. Also, I assumed that all homes are 100% LTV, and that all homes are bought with mortgages and no private money.

So, in a way this is the upper level estimate of how much money is needed to finance all the homes that are out there. Still even if it is 10% of this number, we’re still talking trillions of dollars.

So, how do banks come up with the money to lend you. How can a small bank say in Nebraska afford to lend out money over and over and over and over again? This is the heart of how the mortgage world operates and how interest rates get calculated.

The money lent to a borrower is utlimately raised in the stock market. Mortgage lenders “sell” your mortgage to one of the GSEs (Government Sponsored Enterprise) – Fannie Mae or Freddie Mac. The GSE’s in turn package different mortgages together and sell it on the open market to interested investors. This is why what happens in the open market affects your next mortgage and you!

Visit to see the diagram that explains it all.

Got questions? Send me an e-mail.

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.