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Portfolio loans are mortgages that are held as an investment by the lender. Usually they hold on to the loan because it doesn't fit the underwriting guidelines for investors on the secondary market.
There really is no advantage to having your mortgage held by a portfolio lender. The rates are usually the same the only difference is that the mortgage usually will not be sold off many times over the life of the loan.
Many times a portfolio lender will have programs or different guidelines that are not typical of loans that are sold on the secondary market which follow FNMA and FHLMC guidelines. Therefore you may be able to sometimes obtain a certain home loan program that you may not normally be able to obtain due to your certain situation, by going with a lender that offers a portfolio loan.
Portfolio loans are mortgage loans in which a lender will loan their own money and have minimal plans of selling the loan or transferring servicing to another bank or lender. Often times, portfolio loans will have something different to them that makes it unique to another bank such as the mortgage note being based on a different index.
Lenders that are portfolio lenders often have very conservative guidelines. This is because they plan on holding the loan for the long term.
Portfolio lenders are usually more flexible in their underwriting guidelines. When lenders hold and service their own loans, they have the ability to work outside the box and approve exceptions that typical lenders may not.
While portfolio lenders may be more flexible with their lending guidelines, they can be more conservative on things like: the types of properties they lend on, the Loan to Value (LTV) ratios, the appraisal and review. Since they intend to keep the loan, in the event they have to foreclose they want to make sure that the property will resell, quickly, and for at least what they lent on the property.
Using a broker is a big plus here because they can look at portfolio loans and non portfolio loans to find you the best deal along with the product you are looking for.
Portfolio loans are often kept in a banks "portfolio" because they are not readily marketable to Wall Street investors for one reason or another. Because banks take longer to recoup they capital with Portfolio Loans, this type of loans often carry higher interest rates than "cookie cutter" loans.
There are very few actual portfolio lenders these days, however, there still are some lenders with specific niche products. Some portofolio lenders have niches such as offering excellent jumbo loan rates, non-income verification loans, loans not based solely on a fico score, and foreign national loan programs.
» DISCLAIMER: The information contained in this article on 'Portfolio Loans' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.
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