In a loan participation agreement, what does a lender typically sell?

In a loan participation agreement, what does a lender typically sell?

• A. A portion of an existing loan
• B. A share of servicing rights
• C. A new loan to another borrower
• D. The property title

Answer: (A)

Loan participation is about one lender selling a piece of a loan it already has on its books to another lender or investor. The participant buys a share of the existing loan and, in return, receives a portion of the principal and interest payments plus a proportional share of the loan’s risk. The borrower still interacts with the original lender and the loan remains the same loan secured by the same collateral; no new loan is created, and the title to the property isn’t transferred. Servicing rights can be involved in some deals, but the core sale in a loan participation is the transfer of a portion of an existing loan.

Loan participation is about one lender selling a piece of a loan it already has on its books to another lender or investor. The participant buys a share of the existing loan and, in return, receives a portion of the principal and interest payments plus a proportional share of the loan’s risk. The borrower still interacts with the original lender and the loan remains the same loan secured by the same collateral; no new loan is created, and the title to the property isn’t transferred. Servicing rights can be involved in some deals, but the core sale in a loan participation is the transfer of a portion of an existing loan.