Whole Loan

A single residential or commercial mortgage that a lender has issued to a borrower and that has not been securitized. Whole loan lenders commonly sell their whole loans in the secondary mortgage market to buyers such as Fannie Mae. One reason lenders sell whole loans is to reduce their risk. Instead of holding a mortgage for 15 or 30 years and hoping that the borrower will repay the money, the lender can get the principal back almost immediately.

The lender no longer earns interest on the whole loans that it sells, but it gains cash to make additional loans. When the lender closes additional mortgages, it earns money from origination fees, points and other closing costs paid by borrowers. This liquidity also makes it easier for borrowers to get mortgages. Fannie Mae will buy whole loans one at a time, but some other secondary market entities will only buy pools of whole loans. Loan pools can reduce risk as long as the pool includes loans with different risk characteristics, such as varying loan terms and credit scores. Fannie Mae reduces its risk by requiring that the whole loans it buys meet specific eligibility and underwriting criteria.