I think we can all agree that whole loan trading has MANY aspects to consider.
And you may be wondering:
Deciding to begin whole loan trading in the secondary market is a huge leap for any institution. Not only is whole loan trading tedious and cumbersome — it is also extremely complex and requires a lot of forethought.
Even with 15 years of experience in the banking industry and after strategically advising hundreds of financial institutions on balance sheet management, I’ve found that educating financial institutions on how and when to execute a whole loan trade still requires a lot of time and consideration.
Well, it turns out, there are three important questions to ask yourself when trying to figure out what the best option is for your institution. With these tips, you can be a part of the $2.5 billion
worth of listings on the loan trading platform, Stackfolio.
To guide my thinking, particularly for whole loan purchases, I always look to answer 3 main questions:
What do I need to earn from this trade for it to make financial sense for my institution?
What type of diversification do I need to achieve in my portfolio from this trade?
How much risk am I looking to absorb?
Why these three?
Each question gives me insight into not only the type of loans and transactions I should be looking at, but also the type of trading partner I’m looking to engage with and the level of complexity I can expect from this transaction. Here’s how I try to answer each question:
While there will be more questions asked during a whole loan trade and many more answers needed to complete one, answering the big three questions above will ensure your institution can begin its journey of trading in the secondary market with confidence.