Mortgage industry of the United States

These loans are then securitized and issued at a slightly lower interest rate to investors, and are known as mortgage-backed securities (MBS).

[1] Non-conforming mortgage loans which cannot be sold to Fannie or Freddie are either "jumbo" or "subprime", and can also be packaged into mortgage-backed securities.

Some companies, called correspondent lenders, sell all or most of their closed loans to these investors, accepting some risks for issuing them.

Securitization has grown rapidly in the last 10 years as a result of the wider dissemination of technology in the mortgage lending world.

For borrowers with superior credit, government loans and ideal profiles, this securitization keeps rates almost artificially low, since the pools of funds used to create new loans can be refreshed more quickly than in years past, allowing for more rapid outflow of capital from investors to borrowers without as many personal business ties as in the past.

The growth of lightly regulated derivative instruments based on mortgage-backed securities, such as collateralized debt obligations and credit default swaps, is widely reported as a major causative factor behind the 2007 subprime mortgage financial crisis.

As a result of the housing bubble, many banks, including Fannie Mae, established tighter lending guidelines which made it much more difficult to obtain a loan.

The main concern is that mortgage lenders and brokers, operating legally, are finding loopholes in the law to obtain additional profit.

Over the past several years, use of "automated underwriting" statistical models has reduced the amount of documentation required from many borrowers.

For borrowers who have excellent credit and very acceptable debt positions, there may be virtually no documentation of income or assets required at all.

Freddie Mac conducts a weekly survey of lenders on the rates and points for the most popular mortgage products.

[8][9] Prepayment penalties are discouraged by underwriting requirements of large organizations such as Fannie Mae and Freddie Mac.