why does lenders transfer loan/mortgage and what’s in it for them?
In: Economics
They get cash now.
So they originate a $100 loan and get paid $5 in closing costs then let’s say you’re going to pay $5 in interest a year for the next 30 years. That’s $150 in interest. But they could sell the loan for say $100 principal plus $50 for future interest now and then they can reloan out that $100 plus now they can loan out that $50 they got for the future interest. Now they originate another loan for $150 and make $7.5 in closing costs. Now they can keep scaling their business in making money off of the closing costs as well as part of that interest that they got paid.
The company that bought the loan basically gets to not have any staff relating to selling loans and now has a steady revenue stream where they’ve investing $150 and they’re assured to get $250 over the next 30 years.
Obviously my numbers are pretty far off, but that’s the general idea.
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