What is a global loan?
A global loan is a single loan granted to a borrower. Whole loan lenders often sell them in the secondary market to institutions portfolio managers and agencies such as Freddie mac and Fannie Mae. Lenders sell all of their loans to reduce their risk. Rather than keeping a loan on its books for 15 or 30 years, by selling the entire loan to an institutional buyer, the lender can get the principal back almost immediately.
Key points to remember:
- A global loan is a single loan granted to a borrower.
- Whole loan lenders can sell all of their loans on the secondary market to reduce their risk.
- Instead of holding a loan for 15 or 30 years, the lender can get the principal back almost immediately by selling it to an institutional buyer like Freddie Mac or Fannie Mae.
Understand all loans
Whole loans are issued by lenders to borrowers for multiple purposes. A lender can issue a personal loan or a mortgage loan to a borrower with determined conditions determined by the credit issuer following the subscription to treat. In general, all loans are owned by the lender balance sheet, and the lender is responsible for servicing the loan.
Selling whole loans in the secondary market allows a lender to generate cash that they can use to make more whole loans, which in turn generates more cash through closing costs paid by borrowers.
How do lenders use a total loan?
Many lenders choose to consolidate and sell all of their loans in the secondary market, which enables active trading and market liquidity. Various buyers are available for different types of loans in the secondary market. The mortgage market has one of the most established whole loan secondary markets, with agencies Freddie Mac and Fannie Mae serving as whole loan buyers. Whole loans are often bundled together and sold on the secondary market through a process called securitization. They can also be negotiated individually through institutional loan negotiation groups.
The entire secondary loan market is a type of fourth market which is used by institutional portfolio managers and facilitated by institutional brokers. Lenders work with institutional brokers to list their loans in the secondary market. Lenders can sell personal, corporate and mortgage loans. Loan portfolio managers are active buyers in the entire secondary loan market.
Lenders also have the option of bundling and selling loans in one securitization OK. This type of transaction is supported by a investment bank which manages the process of packaging, structuring and selling a securitization portfolio. Lenders typically bundle loans with similar characteristics into a securitization portfolio with various slices which are rated for investors.
Residential and commercial mortgages have a well-established secondary market thanks to agency buyers Freddie Mac and Fannie Mae, who typically purchase portfolios of securitized loans from mortgage lenders. Freddie Mac and Fannie Mae have specific requirements for the types of loans they buy in the secondary market, which influence mortgage underwriting for lenders.
Example of selling an entire loan
Suppose lender XYZ sells an entire loan to Freddie Mac. XYZ no longer earns interest on the loan, but earns money from Freddie Mac to make additional loans. When XYZ closes these additional loans, it earns money from origination fees, points, and other closing costs paid by borrowers. XYZ also reduces its default risk when selling the entire loan to Freddie Mac. He basically sold the loan to a new lender who manages the loan, and the loan is taken off XYZ’s balance sheet.