Temporary Lender

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.

BREAKING DOWN '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. Whole Loan

    A single residential or commercial mortgage that a lender has ...
  2. Origination Fee

    An up-front fee charged by a lender for processing a new loan ...
  3. Lender

    Someone who makes funds available to another with the expectation ...
  4. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  5. Loan Syndication

    The process of involving several different lenders in providing ...
  6. Car Title Loan

    A short-term loan in which the borrower's car title is used as ...
Related Articles
  1. Investing

    What Does a Lender Do?

    A lender provides funds to another with the expectation those funds will be repaid with interest.
  2. Managing Wealth

    How To Pick The Right Lender When Refinancing A Mortgage

    Refinancing your mortgage has never been easier with the range of lenders and access to information that are available to you.
  3. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  4. Markets

    Tips To Improve Chances Of A Small Business Loan

    Enhance your small business loan eligibility by keeping these important tips in mind.
  5. Managing Wealth

    Commercial Real Estate Loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
  6. Markets

    All About Government Loans

    There are many reasons to seek a government loan rather than one from a private lender. Government loans typically have low interest rates and offer fixed or subsidized options, as well as deferred ...
  7. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  8. Markets

    Student Loan Asset-Backed Securities: Safe or Subprime?

    Similar to the mortgage-backed securities that caused the 2008 recession, student loan asset-backed securities could lead to the next financial crisis.
  9. Personal Finance

    Understanding Loans

    A loan is the act of giving money, property or other material goods to another party with the expectation of being repaid.
  10. Retirement

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
RELATED FAQS
  1. What’s the difference between a mortgage lender and a mortgage servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  2. What factors should I consider when shopping for the best mortgage lender?

    Comparing lenders to obtain the best mortgage loan requires research and willingness to shop around for the best loan to ... Read Answer >>
  3. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  4. What is the difference between a fixed annual percentage rate (APR) and a variable ...

    Fixed ARP and variable APR loans operate differently but serve the same purpose: to collect interest from a borrower so the ... Read Answer >>
  5. What is the difference between secured and unsecured debts?

    Learn the differences between secured and unsecured debt; discover how banks buffer risks associated with each type of loan ... Read Answer >>
  6. How does the loan-to-value ratio affect my mortgage payments?

    Understand what the loan to value ratio is, how the ratio is calculated and learn how it has an impact on your mortgage payments ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center