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I was reading about MBS's and according to my understanding, suppose the bank gives me person a loan for house. Then, the bank sells the loan to the investor/government through an agency like Freddie mac in the form of MBS. So, me paying the mortgage money will go to that investor/government, right?

Now, if I default on the mortgage why will the bank take the possession of it? And how do banks and the investor/government profit from my mortgages?

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  • $\begingroup$ Please clarify your specific problem or provide additional details to highlight exactly what you need. As it's currently written, it's hard to tell exactly what you're asking. $\endgroup$
    – Community Bot
    Dec 2 '21 at 17:35
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After the bank sells its loan to Fannie Mae or Freddie Mac, it becomes a mortgage servicer. The servicer processes payments on the loan, and also acts on behalf of Fannie or Freddie in any foreclosure proceedings resulting from a default by the borrower. If there is a foreclosure, the loan is purchased at par by Fannie/Freddie from the end investor (thus protecting them fully). The bank would send the foreclosure proceeds to Fannie/Freddie.

To answer the second question, the bank makes money by keeping a portion of every mortgage payment for itself, in return for servicing the loan.

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  • $\begingroup$ Thank you for answering. Just so I understand : Customer -> Bank -> Freddie Mac -> Investor/Government. Is this the correct procedure of how it works? $\endgroup$
    – Inderjeet
    Dec 5 '21 at 16:32
  • $\begingroup$ Yes except remove government. Freddie Mac is a government agency- that’s how government is involved. $\endgroup$
    – dm63
    Dec 6 '21 at 4:41
  • $\begingroup$ Thank you for your help !! $\endgroup$
    – Inderjeet
    Dec 18 '21 at 20:24

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