Your Home Mortgage. How unseen investors generate funds to keep home loans flowing

IN the home-buying business, there's an event called ``the passing.'' The phrase is often said with such a solemn air that it sounds like more than just a passing, but a rite of passage. For someone buying a first home, it is, because this is where the biggest financial event in many families' lives takes place.

With mortgage rates between 10 and 11 percent in most of the United States, this ceremony has been taking place more and more often. But even though the pace of lending has become hectic, each step of the passing must follow the rules of law and tradition.

At a lawyer's office, bank conference room, or mortgage company office, the buyer, seller, attorneys, loan officer, and real estate agents gather to sign and pass around all the legal documents that transfer the property to the new owners and commit them to years of monthly mortgage payments.

Also on this day -- or shortly afterward -- the lender begins looking for a way to ``sell'' that brand-new mortgage to outside investors so that the next time a happily nervous couple comes along, money will be available to lend to them.

By the time the passing arrives, home buyers are all too familiar with the steps that led to it, beginning months earlier when they first thought about a new house. It may have started when they picked a neighborhoood or town where they wanted to live. Then, probably with the help of a real estate agent, they found the house of their dreams -- and maybe the price of their nightmares.

This was followed by negotiations over the price, an offer to buy the house, signing the purchase and sales agreement, making a formal loan application, and getting the house inspected. Behind the scenes, the lender was doing a credit check on the prospective buyers, looking into their employment histories, sources of income, debt, savings, and other financial obligations.

Finally, all of those steps led to this important day.

For a short time during the passing, the home buyer gets to hold a check for the purchase price of the home. In the few minutes it takes to look at it, count the zeros, sign it, and turn it over to the seller's representative, the buyer may even feel rich. Where the money comes from AT this time, in the heady atmosphere of the passing ceremony, it probably never occurs to the buyers to wonder where that money came from. ``It came from the bank'' is all they care to know. But the path that money took may have been even more complicated than the one Mr. and Mrs. Homebuyer just went through.

In all likelihood, the money traveled through a maze known as the ``secondary market'' that involved the lender, a smorgasbord of mortgage-backed securities, and a host of investors including pension funds, insurance companies, and individual investors in the US and abroad.

Until the 1960s, the secondary market hardly existed. Since then, and especially since the mid-1970s, it has become an important factor in stabilizing the housing business, providing a steady source of mortgage money to all parts of the country, and removing some of the big sudden shifts in interest rates.

``The secondary mortgage market allows funds to shift across the country,'' says Andrew S. Carron, senior vice-president at Shearson Lehman Brothers. ``It also has the effect of standardizing the mortgage process, which leads to greater consumer protection.''

Last year, more than three-fourths of all residential mortgages were sold on the secondary market -- up from two-thirds in 1984.

This year, with most home buyers demanding now-affordable fixed-rate loans, almost all mortgages are peddled on the secondary market.

Before this market came into existence, the mortgage supply picture was pretty simple. You went to a bank for a home loan and, if the bank had enough deposits from other customers, it could lend you the money. If there weren't enough deposits, you either had to find another lender or put off buying.

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