All it took was a little research. I just hadn't had the chance to get my head around what it meant to "securitize a mortgage loan." Now that I have a better understanding, I figure others might appreciate reading about the securitization process followed by GNMA, FNMA or the FHLMC, in laypersons' terms:
When a mortgage lender makes a loan commitment to a homebuyer to finance or refinance their home mortgage loan, the lender will obtain a “guarantee” from GNMA, FNMA or FHLMC. These three entities guarantee future investors the timely payment of principal and interest on mortgage-backed securities (MBS): GNMA for securities backed by pools of federally insured or guaranteed mortgage loans — mainly FHA and VA — and FNMA and FHLMC for securities backed by pools of conventional mortgage loans. MBS are commonly referred to as "pass-through" certificates because the principal and interest of the underlying loans is "passed through" to investors.
The lender packages that loan with similar mortgages and delivers the pool of loans to a securities dealer (a firm that buys and sells securities for a fee, holds an inventory of securities for resale, or does both) while the lender or loan servicer continues to collect monthly principal and interest payments/escrows from the borrowers. Loan payments and interest are forwarded to Ginnie Mae, Fannie Mae or Freddie Mac. Securities dealers sell the mortgage-backed securities to investors and advise GNMA, FNMA or FHLMC of the sales. They, in turn, disburse payments to the investors.
FNMA explains it like this: “In general, mortgage-backed securities are commonly called 'MBS' or 'Pools' but they can also be called 'mortgage pass-through certificates.' The mortgages that back a Fannie Mae MBS are held in a trust on behalf of Fannie Mae MBS investors. An investor in a mortgage-backed security (the certificate holder) owns an undivided interest in a pool of mortgages that serves as the underlying asset for the security. Interest payments and principal repayments from the individual mortgage loans are grouped and paid out to investors.
“As a Fannie Mae MBS investor, the certificate holder receives a pro rata share of the scheduled principal and interest from mortgagors on the loans backing the security. Interest is paid at a specific interest rate. The certificate holder also receives any unscheduled payments of principal.
There's a plethora of information about this on the internet...you might like to explore a few other explanations such a
Investopedia or
FNMA's Mortgage-Backed Securities page.