What Happens to Your Mortgage After Closing?

The creation of your mortgage is just the first in a series of processes it goes through over its lifetime. Understanding the long-term nature of your mortgage will shed some light on the reasons why lenders are so scrupulous during the underwriting process.

Mortgages are created to be sold. Be aware that most mortgages are created with the intention of reselling them. Mortgages are bundled together after closing into what are called mortgage-backed securities, and these securities are then sold to investors.

Fannie Mae and Freddie Mac are the intermediaries between lenders and investors; effectively, investors forward money to lenders through Fannie and Freddie. In turn, lenders send back mortgages to Fannie and Freddie, who bundle them together (often thousands at a time) and send them to investors, who then send more money.

Fannie sets the guidelines under which the mortgages are underwritten, and the purchase of securities from Fannie/Freddie by investors is based on specific guidelines.

This process explains why lenders are careful. Before these securities are sent to them, however, sample files go through what is called a re-underwriting.

In this process, loans that (for many reasons) are outside what investors are seeking may need to be repurchased from Fannie by the lender. If most of the mortgages in the batch can’t be purchased, they may all be rejected, leaving lenders holding unsalable mortgages.

This goes a long way to explaining why lenders check files scrupulously and may make what seems like unreasonable requests for additional documentation.