Have you ever wondered why mortgage lenders don't run out of money to lend? At one time, that was a problem. But a marvelous, unique system has developed in the U.S.A. that replenishes mortgage lenders' pot of gold. The same system also helps to keep residential mortgage rates very competitive with other investments.

Banks used to be restricted in the amount they could lend by the amount of deposits they received from their customers. When they ran out of money to lend, they had to wait until someone paid off a loan or investors increased their deposits.

Now there are organizations that buy loans from lenders, which in effect gives lenders new money to lend. Fannie Mae, Freddie Mac and Ginnie Mae are the three largest purchasers of mortgage loans. These organizations control billions of dollars of loans, which are in turn sold through the money markets as mortgage securities. Investors from all over the world purchase mortgage securities which have residential real estate in the U.S.A. as their collateral.

The price that your loan officer is able to offer you at any given time is determined by the price of Fannie Mae, Freddie Mac, Ginnie Mae or other securities. These mortgage securities compete for investors' money with bonds and other investments from all over the world. The price of mortgage securities changes nearly as fast as stock and bond prices. Lenders typically adjust their prices once or more daily.

All the loans in a specific mortgage security must conform to the standards as defined by that security. This reassures investors so that they know what they are buying by investing in that specific mortgage security. So when your loan officer says that your credit or property does not conform to Fannie Mae's guidelines, you now know what he/she means.

In the past two years, many new mortgage securities have been developed for loans that do not conform to the standards of Fannie Mae, Freddie Mac and Ginnie Mae. This helps those of us who have credit problems or unusual property types. Because it increases competition for mortgage securities with varying levels of credit and property risk, securitization of mortgage loans helps to keep mortgage interest rates lower than they would otherwise be.