The Size Of It All
Per Nielsen (2025), the household mortgage market in the US is worth roughly $14 trillion, and the agency mortgage backed security market is worth just over $9 trillion. It’s very likely an individual’s mortgage will be bundled with other mortgages as a mortgage backed security - representing a pool of mortgages, and then sold onto investors.
This is quite the process, done by the hands of a line of major players in the secondary mortgage market.
The Process
It goes: originator -> aggregator -> securities dealer -> investor. (Nielsen)
Mortgage Originator
The process begins with the mortgage originator, aka banks or mortgage brokers. They try to acquire customers.
Aggregator
Once several mortgages have been originated, they are aggregated using an aggregator. The aggregator forms pools of mortgages and make them marketable (a process called securitisation). Company examples include Fannie Mae and Freddie Mac, both government sponsored enterprises (GSEs). (Folger)
Securities Dealer
After the MBS has been created by the aggregator, it is sold to the next company: the securities dealer, who sells the MBS onto investors. But, “[securities dealers at these desks do all kinds of creative things with MBS” like… creating CDOs (important for later!)
Investors
Now, the last “player” in the line: the investors! Examples include, “foreign governments, pension funds, insurance companies, banks, GSEs, and hedge funds are all big investors in mortgages.” (Nielsen)
2008 Financial Crisis
Per Kagan (2024), you may associate the name “mortgage backed security” with the 2008 financial crisis, but today it continues to be a fundamental part of the financial system for various reasons. However, today there are increased regulations and audits on MBS. Additionally, most are backed by the US government, thus are considered a safe investment.
Agency vs Non-Agency MBS
However, not all MBS are backed by the US government:
Agency MBS: “issued or guaranteed by government sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac.” (Kagan)
Non-Agency MBS: “Issued by private entities, not backed by government guarantees.” (Higher returns though). (Kagan)
Works Cited
Nielsen, Barry. “Behind the Scenes of Your Mortgage.” Investopedia, 2025, www.investopedia.com/articles/pf/07/secondary_mortgage.asp.
KAGAN, JULIA. “Mortgage-Backed Security (MBS).” Investopedia, 13 June 2024, www.investopedia.com/terms/m/mbs.asp.
Folger, Jean. “Fannie Mae, Freddie Mac and the 2008 Credit Crisis.” Investopedia, 31 Dec. 2021, www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp.
