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

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