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Portfolio Loans; what they are...and what they're not

By
Mortgage and Lending with Christensen Financial Mortgage 385907

It seems that when the term "portfolio loan" is brought up that it conjures up different images in the minds of different people. Let me see if I can give a definition of what a portfolio loan is, at least in my mind, and later, what it isn't.

to me a portfolio loan, in its simplist sense, is a loan where a banking institution establishes its own guidelines. In essence they decide, who the loan will be made available to, and the criteria for acquiring the loan. These guidelines/criteria usually vary from common agency/traditional requirements.  

 For example in my marketplace it is difficult, at best, for a foreign national to acquire financing, but portfolio lenders are making some programs available. Also, another area where agency/traditional guidelines are extremely tough are with condos, and some portfolio lenders are currently accepting what would be considered non conforming condominiums, that would be not conforming to agency/traditional guidelines.

Not everyone will qualify for a portfolio loan as they usually require good/strong credit, ample downpayment and/or initial investments. What's ample? usually 20 to 25%.  There is some room for some isolated credit issues. As an example, I would say possibly relaxed guidelines in regards to short sales, where they were an isolated incident, and the potential borrower has a good total financial picture.

so let's take a couple of minutes to address

what they are not

they are not "subprime loans"

Portfolio loans are just not compatible with low credit scores and/or low downpayments. Just flat out don't like them much. In most cases you can put that/those situations into the

it's not happening

category in regards to portfolio lending.

Also, in most cases they are not fixed rates. What you are looking at is a premium priced ARM, in most cases. By premium priced I mean possibly 1/2 to 1% above conventional market rates.

So, in conclusion, what's the benefit of portfolio lending.

portfolio loans are in fact opening the doors to many buyers who previously were just not going to qualify for a loan by agency/conventional standards. They're not new in that lending institutions have been doing portfolio loans longer than I've been involved in mortgage lending, which is over 30 years.

and

we need them, oh how we need them

 but it is important for the market to have a clearing understanding of portfolio loans, especially in regards to

what they are...and what they're not

Comments (19)

Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

jay - are they primarily because the Lenders service them themselves and do not plan to sell on secondary market, so they can set their parameters?

Feb 27, 2012 10:07 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Jon,

that pretty much hits the nail right on the head. also, if they are not retaining them themselves there is a predetermined investor and purchase agreement for specifically the type of loan/parameters being offered. 

thanks,

jay

Feb 27, 2012 10:13 PM
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

Great explanation, Jay. Thank you.

     Portfolio loans are good when a Buyer cannot meet Fannie Mae/Freddie Mac guidelines, and also when the Property may not meet  FNMA/FHLMC criteria.

Feb 27, 2012 10:22 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Fred,

thank you, and your welcome.

i agree with your assessment also. they're a great tool to give a potentila buyer some options.

thanks

jay

Feb 27, 2012 11:07 PM
Kevin A. Guttman-Author, ReverseMortgageSpecialist
NMLS #384936 - Colorado Springs, CO
877-251-9709

Good post! Many people don't understand what a portfolio loan is, thanks for the great explanation! Have a great day!

Feb 28, 2012 01:02 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

kevin,

thanks, they can be a powerful tool when used properly.

jay

Feb 28, 2012 01:30 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Jay - I have been a fan of portfolio loans for years.  And many of my clients have used them.  Here in the Greater Sacramento region we have several banks, which provide them.  And they do offer fixed rate loans as well as ARMS.  In this market it seems wise to go for fixed rate, since rates are so low.  The exception would be someone, who doesn't plan on owning the property for an extended period of time.  I also note portfolio loans (at least in our area) are much less expensive to originate.  And because many of the portfolio loans are retained by the bank, rather than sold on the secondary market, banks aren't as likely to act in a risky manner, which partly created the housing crisis we are currently in.  Wouldn't it be nice if more banks wrote their own portfolio loans and kept them.  Then perhaps we would not hear in the future, the words, "Too Big To Fail!"

Feb 28, 2012 06:06 AM
Greg Gillespie
GumTree Realty / Genesis Realty Services,Inc - Tupelo, MS
CRS / Broker Owner

I am in the process of doing one right now, and supposed to close in a few weeks.  In this case the home needed repairs and wouldn't go conventional so they are doing it for him in house.

Feb 28, 2012 06:21 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Myrl,

one of the reasons the banks offered protfolio loans was to service their best customers who couldn't meet agency guidelines. many of those clients were self employed. i think they'll make a come back.

Greg,

nice to still be able to get it done, and overcome the obstacles now isn't it.

 

thanks,

jay

Feb 28, 2012 06:26 AM
Margaret Goss
@Properties - Winnetka, IL
Chicago's North Shore & Winnetka Real Estate

Thank you for the clear explanation - and I agree that we need them - anything to help qualified people get loans is a positive. 

Feb 28, 2012 06:39 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Margaret,

I agree the more buyers we can qualify is a plus.

thanks,

jay

Feb 28, 2012 07:56 AM
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer

There is nothing wrong with a portfolio loan product.  Just as with the Fannie/Freddie loans, they are all fully documented.

Feb 28, 2012 08:22 AM
Laurie Clark CRB Angel Realty LLC Your Monument Realtor 719-502-6572
CRB-CCSS-ASD-HBS-RSD-Denver Short Sale Agents - Monument, CO
Angel Realty, LLC

Congrats on the feature! Great post and excellent job explaining portfolio loans. Thanks for sharing and have a great week.

Feb 28, 2012 11:55 AM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Jay, we have a bank here who is doing portfolio loans for certain professionals where they can actually get 100% financing or put 5% down. It is a very limited category - CEOs, CFOs, doctors and lawyers, but what a great group!

Sharon

Feb 28, 2012 11:58 AM
Sean Farrer, P.A.
Coldwell Banker Schmitt - Key West, FL
Real Estate Professional

Great topic especially, for the current market conditions in Key West and the Florida Keys.Thanks for sharing Jay.

Feb 28, 2012 12:01 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Kathy,

nothing wrong at all, but the documentattion required is determined by the lender, and may or may not mirror fannie and fredddie

RSD,

thank you, thank you very much

Frank & Sharon

they are able to determine both their target group and the product guidelines. i bet that program is popular.

Sean

i've got to believe the Keys needs some portfolio lenders.

thanks,

jay

Feb 28, 2012 07:59 PM
Rob Spinosa
US Bank - Larkspur, CA
Mortgage Loan Originator, Marin County

Great post and even better information about a segment of the lending world that few understand.  Portfolio product, in the right hands, serves the needs of not just a few and I'm glad you took the time to shed some light on it. 

I totally agree that these types of loans are a crucial part of the housing recovery and I've always enjoyed working with institutions that support their product line well.

Feb 28, 2012 09:33 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Rob,

thanks, we really need them here, and have some options, but many people are just not sure what they are or how to use them.

jay 

Feb 28, 2012 10:18 PM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Jay: These are good thoughts. As a private portfolio lender, I understand the value of offering this product; especially if the banks don't want to get involved. Thanks for the post!

Feb 29, 2012 01:37 AM