Whole Loan – What it is and How It Works

In the world of finance, the concept of a whole loan holds a significant place, especially for investors and financial institutions looking for direct exposure to the credit market. Unlike securities that are often divided and grouped into various tranches to be sold as part of structured financial products, whole loans are more straightforward, with undivided interest in a financial asset. This asset could range from a residential mortgage to a corporate loan, offering a unique blend of risk and reward to the investor.

Whole Loan - What it is and How It Works

What is a Whole Loan?

A whole loan is a financial asset that one entity fully owns, without any portions being securitized or sold to other investors. This term frequently applies in the context of mortgages, where an investor or a financial institution holds the entire mortgage, including all rights to the principal and interest payments, rather than just a fraction of it or a packaged security interest. Whole loans can also encompass other types of loans, such as commercial, auto, or personal loans.

How Does it Work?

The process begins when a loan originator, such as a bank or a financial institution, issues a loan to a borrower. Instead of packaging this loan into security with other loans and selling it on the secondary market. The originator retains the loan in its portfolio, or it might sell the entire loan to another investor or entity. The entity that owns the whole loan enjoys the full benefits and bears the risks associated with the borrower’s repayments.

The investor in a whole loan directly manages the asset, making decisions on loan servicing, modifications, and actions in the event of a default. In addition, this direct control contrasts with partial ownership through securitized products, where an investor owns a piece of a financial product backed by a pool of loans.

Pros and cons


  • Higher Yield Potential.
  • Also, control.
  • Customization.


  • Higher Risk.
  • Liquidity.

Management Intensive

How to Get a Whole Loan

Acquiring a whole loan involves a series of steps that require due diligence and negotiation. Whole loans can be an intriguing investment for individuals or institutions looking for direct exposure to the credit market without the complexities of securitized products. Here is a guide on how to get started:

Define your investment goals

Start by clearly defining your investment objectives, including the desired return, risk tolerance, and investment horizon. The different types of whole loans come with varying levels of risk and return, so it’s important to match your goals with the right kind of loan.

Conduct market research

Research the current market conditions to identify opportunities. Pay attention to interest rates, economic indicators, and trends in the credit market. This research will help you understand the landscape and target the right type of loan.

Build relationships with originators

Loan originators are entities that create loans, such as banks, credit unions, and other financial institutions. Building strong relationships with these entities can give you access to a pipeline of whole loan opportunities. Networking, attending industry conferences, and joining relevant associations can be beneficial.

Utilize loan platforms and brokers

There are online platforms and brokers that specialize in connecting whole-loan buyers and sellers. These can be invaluable resources for finding available loans that meet your criteria. However, it’s crucial to conduct due diligence on these platforms and brokers to ensure their reliability and the quality of the loans they offer.

Evaluate loan portfolios

Once you have identified potential loans or loan portfolios, conduct a thorough evaluation. This includes analyzing the borrower’s creditworthiness, the loan’s performance history, collateral value, and the terms of the loan agreement. Risk assessment tools and financial models can be helpful in this process.

Negotiate Terms

If you are purchasing a loan from another investor or through a secondary market, there may be room for negotiation on price and terms. Having a clear understanding of the loan’s value and market conditions can strengthen your position in these negotiations.

Complete due diligence and close the transaction

Before finalizing the purchase, conduct comprehensive due diligence. This involves verifying all the documentation, ensuring the loan is legally transferable, and confirming that there are no undisclosed liabilities associated with the loan. Once everything checks out, proceed with closing the transaction, which will typically involve legal documents and possibly the services of a settlement agent.

Manage the loan

After acquiring the loan, effective management is crucial. This includes monitoring payments, managing relationships with borrowers, and staying compliant with all regulatory requirements. Depending on the size of your investment and your expertise, you may consider hiring a loan servicing company to handle these tasks.

Alternatives to Whole Loans

Investors seeking exposure to the loan market without the direct ownership associated with whole loans have several alternatives:

Mortgage-Backed Securities and Asset-Backed Securities:

These are the types of securities backed by a pool of loans, providing variation and decreasing the impact of any single borrower’s default.

Peer-to-Peer (P2P) Lending:

Platforms that allow individuals to lend directly to other individuals or small businesses, spreading the risk across multiple loans.

Loan Participation:

This involves purchasing a share of a loan or a pool of loans, offering a compromise between direct loan ownership and securitized products.

So, if you are not able to qualify for a whole loan, these are the alternatives that you can consider to obtain cash.