It gets confusing because portfolio lenders are also involved in typical mortgage banking. Portfolio lenders, are commonly known as Savings & Loan institutions. They are called portfolio lenders, because they originate loans for their own portfolio, but don't sell them to the secondary market.These lenders while rare can also help with borrowers who do not qualify for loans with typical lenders because they make their own guidelines. .
Savings and Loan institutions and credit unions are common places you might find portfolio lenders. Portfolio lenders will often pay more compensation to its loan officers for originating a portfolio product. However, portfolio lenders are not usually as competetive as mortgage bankers and brokers in the fixed rate loan market.
Because the default risks associated with making Portfolio Loans, portfolio lenders always charge a higher interest rate to justify the higher risks. In addition to the intrinsic risks, portfolio loans, by definition, are mortgages that lenders will hold in their portfolio for the entire loan term, and cannot resell the loan to recoup their investment capitals, portfolio loan borrowers should expect to be charged higher fees.
The are also some lenders that are not considered tradional portfolio lenders, but do have some programs that are portfolio programs only. These lenders are lending money from their own portfolios and hold onto the mortgage. A couple examples would be Washington Mutual and Bank United.
World Savings is an example of a portfolio lender. They do not sell their loans to other investors or lenders.
The underwriting guidelines for a porfolio product can be far more flexible than for a loan which is being sold to a secondary investor. This flexibility can often mean that the underwriter of the portfolio program can use a much more common sense approach when evaluating things such as past credit problems, prior bankruptcies, lack of cash reserves, etc. In some portfolio programs there is no minimum credit score requirement although the borrowers use of other credit and past credit history is a determining factor in any loan program.