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4 January 2022
What is a Whole Loan?

What is a Whole Loan?

A whole loan refers to a single loan issued by banks or other lending institutions that is not broken up for resale in the secondary market. The loan can take many forms, both commercial or consumer-related, including vehicle loans or mortgage loans

Whole loans can be resold or the lending institution can elect to keep the loan. In the latter instance, the lending institution assumes all risks related to the loan and is responsible for the servicing and collection of payments on the loan. The loans then become part of the lending institution’s loan portfolio.

Resale of Whole Loans

Lenders also have the ability to resell whole loans to investors. When presented with this opportunity, investors typically review the portfolio of the loans being resold by the lending institution to determine the chances of default when deciding the monetary worth of the portfolio. Banks and other financial institutions  are the primary investors of these loan portfolios.

While there are a wide array of loan types to compete with whole loans, oftentimes the separation between loans comes down to the question of the number of lenders involved in the loan transaction. Most often, a standard whole loan deal is considered a 1:1 relationship between the lender and the borrower, wherein the lender issues a singular loan to a borrower.

Syndicated Loans vs Whole Loans

By contrast, a syndicated loan is financing offered by a group of lenders (referred to as a syndicate) who operate jointly to provide funds to a single borrower. The borrowers in a syndicated loan are typically comprised of companies, government entities, or other large-scale organizations. A borrower may take out a syndicated loan if it needs more money than a single lender is able to provide or requires specialized lenders with knowledge of specific asset classes.

Each lender in the syndicate contributes to the overall loan and accepts the financial risk involved. Within the syndicated loan process, one of the lenders accepts the role of arranging bank (manager) who is then responsible for the administration of the loan on behalf of the other lenders involved in the syndicate.  

Whole Loans vs Securitized Loans

As previously discussed, in the whole loan process, the lender is considered a single entity who is issuing a loan to a borrower, while a syndicated loan is concerned with a group of lenders issuing a loan. A securitized loan, however, involves the role of the lender being separated into different components. In the securitized loan process, a loan is sold by the original lender to a new entity. This new entity, commonly referred to as the issuer, then sells securities on the newly acquired loan to other investors. 

These investors are, in essence, buying bonds on the loan that then entitles them to a share of the income paid by the borrower on the loan. Once the loan is sold to an issuer, the original lender is no longer responsible for what happens with the loan, as the maintenance of the loan now resides with the issuer.

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