How Much Money Can a Company Make Selling the Mortgage Note?

That depends on the situation, the type of loan, and the way the loan is sold. To start with, there are 2 ways to sell a mortgage. 1.) Service retained, this means that while the asset itself is sold, and the originating lender gets their money back to lend again (plus a premium typically), they retain the servicing of the loan. This means that you still make your monthly payment to that lender. The lender, will accept the payment, take a servicing fee out of the payment  (typically .125%) and pass the rest of the payment along to the entity that has purchased the loan. This is the typical type of sale in the cases of the GSE’s (Fannie Mae and Freddie Mac), as Fannie and Freddie don’t accept loan payments directly. When a lender sells a loan service retained, they receive less income initially, however they will continue to make money on the servicing of the loan.

2.) The lender can also sell the loan service released. In this case they sell the asset, as well as the servicing rights to the loan. The originating lender will make more money in this sale, however they will no longer have any rights to the loan, and therefore will not collect payments. By not collecting payments in this case, they will not be able to earn additional income on this loan. This is typical in a bank to bank sale, where the originating bank may not be a mortgage servicer, and therefore, once they write the loan will sell to another bank that does service loans.

As for how much money is made when a bank sells the loan, this will vary widely depending on the type of loan, the interest rate, the way the loan was originated etc. As a rule of thumb, an originating lender (non-wholesale) will typically price an interest rate that will pay 1.5-2.0% on the secondary market. From that 2% or so, they pay the loan officer a commission, pay the loan processors and underwriters, cover overhead etc. In this sense, while they may have ‘made’ about 2% for originating the loan, they will typically earn a gross profit of somewhere around .5% after the cost to originate the loan. This is a basic model for a retail bank that pays an employee loan officer, and retains servicing of the loan. Remember, if the bank sells the servicing they will make additional money on the sale (somewhere in the range of .25 to .375% depending on the loan and the end investor). A wholesale lender, who originates loans through 3rd party mortgage brokers, or correspondent relationships is not responsible to pay the loan officer, or for the processing of the loan. Their cost to originate is lower, so they will offer a lower start rate, pricing in anywhere from .25% to 1.0% depending on the lender, how aggressive they are, etc. However in this case, you will typically have to pay the originating loan officer as well, either via a fee paid on the settlement statement, or via an interest rate closer to a retail rate. The end cost to the consumer will typically be very similar regardless of the channel, and the end profit by the bank will be very similar as well, they are simply different means to the same end.

While these numbers can vary depending on the actual interest rate on the loan (a higher rate is worth more as it produces more ‘income’ for the bank via higher interest), these are a good rule of thumb for conforming loans. When subprime loans were prevalent, the numbers on those loans and the gain on sale would have been very different. A subprime mortgage lender, depending on the time (profits slimmed as more banks began writing the loans) made anywhere between 2 and 5+% on the origination of subprime loans.