A loan loss reserve fund is a form of credit enhancement, or a type of insurance, that helps lenders control for the risk that loans will not be repaid. Each time a lender submits a loan to the REEL program, funds are contributed equal to a percentage of the loan amount to a loan loss reserve account for that lender. If a borrower defaults on a loan, the lender may access funds in their loan loss reserve account to mitigate their losses. Because they have access to the loan loss reserve fund, REEL lenders can offer better rates and more attractive terms to borrowers and/or make financing available to borrowers with a wide range of credit scores.
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What is a loan loss reserve fund?
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