Mortgage Banking

Making sense of commercial real estate finance.

Win-Win When a Lender Sells a Loan

Posted by Jordan Crouch on June 5, 2008

CoStar has an article about there being more opportunities to purchase loans, whether a whole loan, pieces of a loan or bundles of several loans. This is already happening and will continue to happen because it’s a win-win situation. It is often less expensive for a lender (or investor) to buy a loan from another bank, usually at a discount, than making a loan itself. For the lender selling the loan, it frees up cash to go out and make a new loan.

We are seeing this locally with smaller regional banks. Many lenders have reached their maximum allocation for construction loans and are stuck not being able to lend to their best customers. By selling off a loan or two or three, the bank now has money to lend to its customers, keeping them happy as well as possibly getting rid of a bad loan.

The real question is why is there a need to get rid of a loan? Perhaps the loan isn’t getting paid off in the usual time frame, or the borrower is having financial trouble, or the lender needs to clean up his balance sheet. There are several reasons why a lender would want to sell a loan. The CoStar article focused on CMBS lenders but the problems and opportunities are still the same regardless of size.

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