Sometimes, lenders who originate a loan decide to sell part or all of the loan to another lender or investor. This is loan participation, and the nationwide industry standard practices for this type of transaction are the same regardless of the kind of financial institutions involved— banks, credit unions, asset-based lenders, or mortgage companies.
With expert witness services, you are able to better understand the reasons why lenders might sell loan participations, which can be helpful if there is ever a need for litigation. Some of the main reasons why lenders sell loan participations include:
To Increase Profits – Even though the originating lender may sell off a large part or even all of the loan to another investor or lender, they will still earn a service fee.
To Originate Larger Loans – If a loan is larger than the lender’s legal lending limit, then loan participation is an excellent way to legally get around that barrier. The lender might be able to obtain a high-quality loan to accommodate a client who needs a loan that exceeds the originating lender’s legal lending limit.
To Reduce Exposure – The originating lender might want to reduce their exposure in a particular type of loan, geographical area, collateral property type, or borrower type.
To Accommodate Good Borrowers – The originating lender might perform loan participation to assist a good borrower who is close to their maximum lending limit for one borrower.
To Take Advantage of a Profitable Quality Loan – The originating lender may take advantage of this type of transaction to take advantage of lending opportunities that would typically exceed the lender’s legal lending limit without selling off a portion of the loan.
