Why Do Banks Sell Mortgages?
The home mortgage industry is complex and involves many players, from front-line lenders to investors who purchase home mortgage loans. To understand how the industry works, you first must understand why banks and other front-line lenders sell mortgages.
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Cash Reserve Requirements
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A bank is required by law to maintain a certain amount of money in cash reserves to protect its depositors and investors. Therefore, a bank is able to maintain a set amount of loans on its books.
When Lending Halts
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As a bank approaches the cap on the total value of loans on its books, the institution must stop lending. A halt in lending prevents a bank from entering into new loans and making money.
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Sales of Mortgage Loans
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A bank sells mortgage loans to other banks, to other mortgage lenders, to institutions such as Freddie Mac and to investors.
How Banks Benefit
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By selling mortgages, a bank is able to continue lending to new customers. The sale of a mortgage "frees up space" in regard to the reserve and lending limit.
Time Frame
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A bank or another mortgage lender is able to sell a mortgage loan immediately upon completing the transaction. There is no waiting period.
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