Portfolio Sale

What Is a Portfolio Sale?

A portfolio sale is the sale of a large group of related financial assets in a single transaction. A portfolio sale, once in a while called a "bulk sale," is common in the secondary mortgage market. Freddie Mac and Fannie Mae are two of the most unmistakable players in this market; they buy portfolios of loans, which begin as residential mortgages, from banks and credit unions. This, thusly, assists these financial institutions with working on their liquidity by transforming loans into cash, which can then be utilized to make extra loans.

Grasping Portfolio Sales

Freddie Mac and Fannie Mae not just work with portfolio sales by purchasing loans, they additionally assist lenders with pooling these assets in manners that are the most productive for the lender. Before they consent to a portfolio sale, notwithstanding, Freddie Mac and Fannie Mae perform due diligence on the pooled loans to ensure that they meet their credit requirements and are properly recorded. This requirement is part of the explanation that lenders ask borrowers for nitty gritty data when they apply for mortgages: in light of the fact that to sell the loans later, they need to give that equivalent data to the buyer.

Portfolio Sales and Mortgage Servicing Companies

Mortgage servicing companies likewise participate in portfolio sales. A servicer could sell a group of thousands of loans that it gathers payments on, worth millions or even billions of dollars. The loans normally have shared attributes. The borrowers could all live in a similar state and have comparable credit scores, and the loans could be generally fixed-rate loans of a comparative principal amount, interest rate and loan-to-value ratio. After the servicer reports a portfolio sale, interested buyers have a set amount of time, maybe fourteen days, to bid on the portfolio, and the sale goes to the highest bidder.

Portfolio Sales and Receivership

Portfolio sales can likewise happen when a financial institution enters receivership. For instance, in 2009, when the Federal Deposit Insurance Corporation (FDIC) went about as receiver for the failed IndyMac Federal Bank, its purchaser, OneWest Bank, reserved the privilege to execute a portfolio sale where it could liquidate the leftover shared-misfortune loans. Outsiders could submit fixed bids for the portfolio sale. Under the terms of the shared-misfortune agreement, the FDIC could require OneWest to liquidate any shared-misfortune loans not sold through a portfolio sale.

Features

• Portfolio sales include selling a bulk amount of comparable assets generally together in a single transaction.
• In the mortgage market, issuers like Fannie Mae will sell a bundle of mortgages to buyers on the secondary market in a portfolio sale, who may then securitize them into mortgage-backed securities.
• At the point when a company leaves business, it might sell off its assets or client list across the board portfolio sale to a single buyer.