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. Warehouse Lending

    A line of credit extended by a financial institution to a loan ...
  2. Mortgage Originator

    An institution or individual that works with a borrower to complete ...
  3. Portfolio Lender

    A company that not only originates mortgage loans, but also holds ...
  4. Yield Curve

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

    A type of mortgage-backed security that is secured by the loan ...
  6. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
Related Articles
  1. 4 Steps To Attaining A Mortgage
    Credit & Loans

    4 Steps To Attaining A Mortgage

  2. Profit From Mortgage Debt With MBS
    Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

  3. Understanding Your Mortgage
    Personal Finance

    Understanding Your Mortgage

  4. Understanding The Mortgage Payment Structure
    Credit & Loans

    Understanding The Mortgage Payment Structure

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center