Loan Participations
Answer by Kathleen Blanchard, BOL Guru Guru Bio
Question: I have always operated under an assumption that a loan participation purchased by a bank, where the underlying loan becomes classified subsequent to the purchase, cannot be put or sold back to the originating bank by law or regulatory rule. Am I correct? If so where can I find this information?
Answer: Whether or not a loan participation must be taken back by the originating bank depends entirely on the participation agreement, if the participation is with recourse or without recourse. Without recourse, the originating bank has no further obligation. With recourse, it will depend upon what the participation agreement says are the triggers for taking the loan back.
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