An institutional lender is any group or organization that provides loans to home and business owners. Most home loans originate from institutional lenders who usually use their customer deposits and savings accounts to provide mortgages. Institutional lenders make money for their depositors by lending money to prospective or current property owners who want to buy homes or refinance and use the interest that is being charged on the loan to pay back their customers.
As a financial company, an institutional lender acts as a financial intermediary, that gathers the deposits of clients and invests them into various investments including the purchasing and funding of mortgages and trust deeds.
Types of Institutional Lenders
Various Types of Institutional Lender
In order to be an institutional lender, the party must have a net asset of over $1 billion and at least $500 billion in net worth.
Institutional lenders place depositor funds into various types of investments. Money is typically put into the direct investments of the institutional lender such as loans or mortgages, securities, or equities. Institutional lenders are the largest buyer and seller of mortgage backed securities because of their strong financial backing and ability to produce, buy and sell existing notes. Oftentimes, loans are packaged and sold in bulk, rather than individually. This way risk is spread amongst many different loans, rather than on one loan.