Loan sales do not completely protect the lending FI from credit risk exposure because

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Loan sales typically contain an implicit quality guarantee by the lending FI, meaning that if there are any deficiencies or defects in the loan, the FI may be required to repurchase it. This means that the FI may still be exposed to credit risk even after selling the loan. Additionally, if there are a high number of defaults on loans sold by the FI, it may reduce the ability of the bank to sell loans in the future, further exposing them to credit risk. Loans may also be sold with or without recourse, meaning that the lender may or may not be responsible for any losses on the loan after it is sold. However, regulators do not usually require the lending FI to make restitution for defaulted loans.

Loan Sales Do Not Completely Protect the Lending FI from Credit