Temporary Lender

AAA

DEFINITION of 'Temporary Lender'

A mortgage lender that sells the loans it originates into the secondary market shortly after closing, as opposed to holding the loans in portfolio. Most lenders are temporary lenders.

These lenders have a few options when selling loans. Security dealers may be willing to purchase the loans for the purposes of securitizing the assets for resale to investors. Other lenders may buy the debt and hold it in their portfolios. The temporary lender may also sell its loans into its own trust, as part of a securitization process.

INVESTOPEDIA EXPLAINS 'Temporary Lender'

Temporary lenders make money in three primary ways. First, they charge fees to the borrower. Second, they originate loans at interest rates above par value which allows them to sell the loans into the secondary market for a premium price (the loan is worth more in the secondary market than the actual principal balance of the loan because of the above par interest rate). Third, depending upon the slope of the yield curve, they earn a warehouse spread for the time in which they are the holder of record of the loan (the interest rate on the loan is higher than the interest rate at which the lender borrows money to fund the loan – this spread is earned until the loan is sold into the secondary market).

RELATED TERMS
  1. Mortgage Banker

    A company, individual or institution that originates mortgages. ...
  2. Securitization

    The process through which an issuer creates a financial instrument ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  4. Commercial Mortgage-Backed Securities ...

    A type of mortgage-backed security that is secured by the loan ...
  5. Warehouse Lending

    A line of credit extended by a financial institution to a loan ...
  6. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  3. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  4. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  5. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.
  6. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  7. Options & Futures

    These Are The Top Brokerage Firms For Options Trading

    Trading options? Here is the list of the best brokerage firms for options trading, with features, functionality, and brokerage rates.
  8. Credit & Loans

    What are the pros and cons of owning an equity REIT versus a mortgage REIT?

    Learn about investing in equity, mortgage and hybrid REITs. Explore the different strategies REITs employ to generate income and create dividends.
  9. Options & Futures

    What is a volatility smile?

    Discover what options traders mean when they refer to a "volatility smile," and learn why a volatility smile's existence perplexes many investors and analysts.
  10. Credit & Loans

    What is the debt ratio for an FHA loan?

    Borrowing through the Federal Housing Administration requires individuals to provide proof of income as well as information relating to total outstanding debt.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center