Sale of loan portfolio

What is sale of loan portfolio?

Sale of loan portfolio is when a lender sells off a large batch of its loans, which gives the lender more cash to fund additional loans. Loan portfolio sales are common in the mortgage industry.

Deeper definition

When a homebuyer gets a mortgage, the buyer likely won’t stay with the original lender. That’s because banks and mortgage-servicing companies regularly sell off their loans in portfolio loan sales, also called bulk sales. It’s a way for banks to get more cash so they can take on more loans and mortgages. It’s also common among mortgage servicers, which handle payment processing, loan management and other administrative duties, including foreclosure.

Some companies specialize in buying loan portfolios, purchasing residential mortgages in bulk from banks, credit unions and other financial institutions. When companies buy loan portfolios, they perform a rigorous, thorough assessment of the loans, making sure that all loans meet their own credit requirements and verifying that all of the necessary documentation has been provided.

The Federal Deposit Insurance Corp., or FDIC, also conducts loan portfolio sales, selling off loans it seizes from failed banks. It sells the loans using sealed bids, and the buyers take on the risk of investing in these loans. Although the loans came from failed banks, that doesn’t mean the loans themselves are bad.

Sale of loan portfolio example

Janie obtains a mortgage through a local credit union. Her loan is part of a batch of loans that the credit union later sells to a mortgage-servicing company. Janie makes her monthly mortgage payments to the loan servicer until that company sells her loan and others to a major financial institution that buys loans in bulk. Janie starts making her payments to the big financial entity that now owns and administers her mortgage loan.

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