A whole loan sale is the outright sale of individual loans, or a pool of them, by the lender that holds them to another investor. The buyer acquires each loan in full, with the right to all future payments and the full risk of default. It differs from securitization, in which loans are placed in a vehicle that issues securities in tranches, and from a participation, in which only a share of a loan is transferred.
Sellers use whole loan sales to free up capital and funding, manage concentrations or dispose of a non-performing loan portfolio. Buyers include banks, insurers, credit funds and securitisation sponsors gathering collateral. The sale agreement contains representations about the loans, with a duty to repurchase any that breach them. Loan servicing may pass to the buyer or stay with the seller, and the transfer is structured as a true sale.