Asset Quality
Loans Held for Sale
Also known as LHFS
Loans held for sale are loans — usually newly originated residential mortgages — that a bank intends to sell rather than keep, carried at the lower of cost or fair value. They reflect mortgage-banking and originate-to-distribute activity.
Formula
Reported separately from held-for-investment loans on Schedule RC. The balance turns over quickly as loans are originated and then sold into the secondary market, so it fluctuates with mortgage volume and rates.
Why it matters
A large held-for-sale book signals a mortgage-banking business whose revenue swings with origination volume and gain-on-sale margins. The balance also carries pipeline and interest-rate risk between origination and sale, especially when rates move quickly.
How to interpret
Read loans held for sale as a sign of business mix and a volume indicator. A shrinking balance as rates rise reflects collapsing refinance activity; a large balance concentrates fee income in the cyclical, rate-sensitive mortgage-banking line.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| Small / fast-turning | Typical | Modest pipeline, limited warehouse risk. |
| Moderate | Normal | Active but balanced mortgage-banking operation. |
| Large pipeline | Watch | Meaningful volume and rate-lock exposure. |
| Outsized vs. capital | Concern | Heavy reliance on cyclical gain-on-sale revenue. |
Worked example
Frequently asked
Why are some loans held for sale instead of held for investment?
Banks that originate to distribute — most commonly conforming residential mortgages — classify those loans as held for sale because they intend to sell them into the secondary market rather than keep them on the balance sheet.
How is loans-held-for-sale accounting different?
Held-for-sale loans are carried at the lower of cost or fair value and are not part of the allowance for credit losses, unlike held-for-investment loans. They reflect short-term inventory awaiting sale.
Sources
- FFIEC Call Report Schedule RC (Balance Sheet)
See LHFS across 4,335 US banks
BankRegReports ranks every FDIC-insured institution by LHFS, refreshed quarterly within 48 hours of FFIEC release.