Catalyst News

The Myths & Truths of Loan Participations

by Catalyst Corporate | Jun 21, 2022

When it comes to buying loan participations, some credit unions are uncertain if the pools are risky. There are several myths and truths surrounding the process of purchasing loan participations.

It is important to know the truth when determining whether it is the right direction to take for your credit union. The myths are unveiled and the truths revealed below.

Myth:

Credit unions can only purchase the types of loans they originate.

Truth: 

There is no specific requirement stating credit unions can only purchase the types of loans they organically originate. Loan participation programs are made to ensure diversity throughout the credit union’s risk profile and leverage the skills and talents of other credit unions. There are no restrictions on the types of loans credit unions can purchase. Here are the regulations that cover loan participations.

Myth:

Loan participations are an administrative hassle, especially when there are multiple buyers involved.

Truth:

The administration of loan participations is known to be a daunting task. In the past, credit unions would put together a pool to sell, determine a sense of fair market pricing, and be responsible for finding the buyers. This didn’t even include the effort or expertise needed to run the monthly reporting – which lasts for several years for each buyer. For many credit unions, it didn’t make sense to devote a significant amount of internal resources to manage these aspects of the process.

Today, it truly is easier for credit unions to efficiently find buyers thanks to recent technology solutions offering online networks, as well as widely adopted standard agreements that reduce the administrative inconveniences associated with the process of completing the sale.

At Catalyst Corporate, the Loan Participation program has facilitated more than $3 billion in credit union loans since 2014. LPExchange.org, or LPX, is a liquidity solution designed to help coordinate and execute transactions in a safe, secure, and transparent platform.

If your credit union is looking to buy or sell a loan participation, let Catalyst Corporate’s experts connect you with a nationwide network representing all sizes of credit unions. For more information, contact us today.