A mortgage-backed security, or MBS, is a bond backed by a pool of home loans. Lenders make loans, then sell many of them into pools. Fannie Mae and Freddie Mac guarantee pools of conventional loans, and Ginnie Mae guarantees pools of government loans such as FHA, VA and USDA. Investors buy the securities and receive the principal and interest borrowers pay. The prices investors are willing to pay for these bonds are a major input into the rate sheets lenders publish each day. Your loan terms do not change when your loan is sold.
How a loan becomes part of an MBS
- A lender originates your loan under Fannie Mae, Freddie Mac, FHA, VA or USDA rules.
- The lender sells the loan, or pools it with similar loans, into a security.
- A guarantor backs timely payment to investors under its program: Fannie Mae or Freddie Mac for conventional loans (Fannie Mae MBS), Ginnie Mae for government loans (Ginnie Mae).
- Investors buy the securities.
- A servicer collects your payments and passes them through.
That is why the company on your application and the company that collects your payment can be different. See lender, servicer and investor.
Who regulates the guarantors
The Federal Housing Finance Agency regulates Fannie Mae and Freddie Mac and has served as their conservator since 2008 (FHFA). Fannie Mae and Freddie Mac charge guarantee fees for taking on credit risk, and FHFA oversees how those fees work (FHFA guarantee fees). Ginnie Mae is part of HUD.
Why MBS prices move your rate
- Price and yield move opposite. When MBS prices fall, yields rise, and lenders need higher rates or more points to sell new loans at the same price.
- The note rate and the bond coupon differ. The gap covers servicing, guarantee fees and lender pricing. You choose a note rate and points or credits from a sheet built off those bond prices.
- Prepayment risk. If borrowers refinance in large numbers, investors get money back early and must reinvest at lower yields. Expectations about prepayments affect prices.
- Other markets. Treasury yields, inflation data and Federal Reserve policy all affect MBS demand. See what moves mortgage rates.
Because pricing can change during the day, a quote from the morning may not be available in the afternoon. That is the reason to lock your rate once you are ready.
What it means for you as a borrower
- Your promissory note and its terms stay the same if the loan is sold.
- You will be told in writing if your servicer changes.
- Your loan must meet the guarantor's standards to be pooled, which is why agency rules matter so much in underwriting.
Fictional example
Fictional example: a buyer asks who will "own the loan" after closing. The loan is a conventional fixed-rate loan that the lender sells into a Fannie Mae pool. A separate company services it. The buyer's rate, term and payment are the same as on the note. The buyer gets a notice of the servicing transfer, updates the autopay, and makes sure the homeowners policy lists the new servicer.
Common mistakes
- Thinking a sold loan can change its rate or terms.
- Assuming rates move one to one with the 10-year Treasury. MBS have their own supply and demand.
- Waiting on a "better rate" without a lock while markets move.
Next step
If you are watching rates and trying to decide when to lock, I can explain what I am seeing in pricing for your loan type. Book a call, or start an application.
Related questions
Sources
Links checked Oct 21, 2026.
- Fannie Mae Capital Markets, Mortgage-Backed Securities overview (retrieved Oct 21, 2026): https://capitalmarkets.fanniemae.com/mortgage-backed-securities
- Ginnie Mae, home page (guarantee of FHA, VA, USDA mortgage-backed securities) (retrieved Oct 21, 2026): https://www.ginniemae.gov/
- FHFA, Guarantee fees (retrieved Oct 21, 2026): https://www.fhfa.gov/policy/guarantee-fees
- FHFA, About FHFA (regulator and conservator of Fannie Mae and Freddie Mac) (retrieved Oct 21, 2026): https://www.fhfa.gov/about
- 12 U.S.C. 1701j-3, Preemption of due-on-sale prohibitions, (d) exemptions (current U.S. Code): https://www.law.cornell.edu/uscode/text/12/1701j-3
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026