Portfolio Lenders: A Solution for Hard to Close Mortgages

If
you’re
having
trouble
obtaining
a
home
loan,
perhaps
after
speaking
to
multiple
banks,
lenders
and
even
a

mortgage
broker,
consider
reaching
out
to
a
“portfolio
lender.”

Simply
put,
portfolio
lenders
keep
the
loans
they
originate
(instead
of
selling
them
off
to
investors),
which
gives
them
added
flexibility
when
it
comes
to
underwriting
guidelines.

As
such,
they
might
be
able
to
offer
unique
solutions
others
cannot,
or
they
could
have
a
special
loan
program
not
found
elsewhere.

For
example,
a
portfolio
lender
may
be
willing
to
originate
a

no-down
payment
mortgage
while
others
are
only
able
to
provide
a
loan
up
to
97%
loan-to-value
(LTV).

Or
they
could
be
more
forgiving
when
it
comes
to
marginal
credit,
a

high
DTI
ratio,
limited
documentation,
or
any
other
number
of
issues
that
could
block
you
from
obtaining
a
mortgage
via
traditional
channels.

What
Is
a
Portfolio
Loan?

• A
  home
  loan
  kept
  on
  the
  bank’s
  books
  as
  opposed
  to
  being
  sold
  off
  to
  investors
• May
  come
  with
  special
  terms
  or
  features
  that
  other
  banks/lenders
  don’t
  offer
• Such
  as
  no
  down
  payment
  requirement,
  an
  interest-only
  feature,
  or
  a
  unique
  loan
  term
• Can
  also
  be
  useful
  for
  borrowers
  with
  hard-to-close
  loans
  who
  may
  have
  been
  denied
  elsewhere

In
short,
a
“portfolio
loan”
is
one
that
is
kept
in
the
bank
or
mortgage
lender’s
portfolio,
meaning
it
isn’t
sold
off
on
the
secondary
market
shortly
after
origination.

This
allows
these
lenders
to
take
on
greater
amounts
of
risk,
or
finance
loans
that
are
outside
the
traditional
“credit
box”
because
they
don’t
need
to
adhere
to
specific
underwriting
criteria.

Nowadays,
most
home
loans
are
backed
by
Fannie
Mae
or
Freddie
Mac,
collectively
known
as
the
government-sponsored
enterprises
(GSEs).
Or
they’re
government
loans
backed
by
the
FHA,
USDA,
or
VA.

All
of
these
agencies
have
very
specific
underwriting
standards
that
must
be
met,
whether
it’s
a
minimum
FICO
score
of
620
for
a

conforming
loan.
Or
a
minimum
down
payment
of
3.5%
for
an

FHA
loan.

If
these
conditions
aren’t
met,
the
loans
can’t
be
packaged
as
agency
mortgage-backed
securities
(MBS)
and
delivered
and
sold.

Since
small
and
mid-sized
lenders
often
don’t
have
the
capacity
to
keep
the
loans
they
fund,
they
must
ensure
the
mortgages
they
underwrite
meet
these
criteria.

As
a
result,
you
have
a
lot
of
lenders
making
plain,
vanilla
loans
that
you
could
get
just
about
anywhere.
The
only
real
difference
might
be
pricing
and
service.

On
the
other
hand,
portfolio
lenders
who
aren’t
beholden
to
anyone
have
the
ability
to
make
up
their
own
rules
and
offer
unique
loan
programs
as
they
see
fit.

After
all,
they’re
keeping
the
loans
and
taking
the
risk,
so
they
don’t
need
to
answer
to
a
third
party
agency
or
investor.

This
means
they
can
offer
home
loans
to
borrowers
with
500
FICO
scores,
loans
without
traditional
documentation,
or
utilize
underwriting
based
on
rents
(DSCR
loans).

Ultimately,
they
can
create
their
own
lending
menu
based
on
their
very
own
risk
appetite.

Portfolio
Loans
Can
Solve
Your
Financing
Problem

• Large
  loan
  amount
• High
  DTI
  ratio
• Low
  credit
  score
• Recent
  credit
  event
  such
  as
  short
  sale
  or
  foreclosure
• 
  Late
  mortgage
  payment
• Owner
  of
  multiple
  investment
  properties
• Asset-based
  qualification
• Limited
  or
  uneven
  employment
  history
• Qualifying
  via
  subject
  property’s
  rental
  income
• Unique
  loan
  program
  not
  offered
  elsewhere
  such
  as
  an
  ARM,
  interest-only,
  zero
  down,
  etc.

There
are
a
variety
of
reasons
why
you
might
want/need
a
portfolio
loan.

But
it’s
generally
going
to
be
when
your
loan
doesn’t
fit
the
guidelines
of
the
GSEs
(Fannie/Freddie)
or

Ginnie
Mae,
which
supports
the
FHA
and

VA
loan
programs.

As
noted,
these

types
of
mortgage
lenders
can
offer
things
the
competition
can’t
because
they’re
willing
to
keep
the
loans
on
their
books,
instead
of
relying
on
an
investor
to
buy
the
loans
shortly
after
origination.

This
allows
them
to
offer
mortgages
that
fall
outside
the
guidelines
of
Fannie
Mae,
Freddie
Mac,
the
FHA,
the
VA,
and
the
USDA.

That’s
why
you
might
hear
that
a
friend
or
family
member
was
able
to
get
their
mortgage
refinanced
with
Bank
X
despite
having
a

low
credit
score
or
a
high LTV.

Or
that
a
borrower
was
able
to
get
a
$5
million

jumbo
loan,
an

interest-only
mortgage,
or
something
else
that
might
be
considered
out-of-reach.
Perhaps
even
an
ultra-low
mortgage
rate!

A
portfolio
loan
could
also
be
helpful
if
you’ve
experienced
a
recent
credit
event,
such
as
a
late
mortgage
payment,
a
short
sale,
or
a
foreclosure.

Or
if
you
have
limited
documentation,
think
a

stated
income
loan
or
a
DSCR
loan
if
you’re
an
investor.

Really,
anything
that
falls
outside
the
box
might
be
considered
by
one
of
these
lenders.

Who
Offers
Portfolio
Loans?

Some
of
the
largest
portfolio
lenders
include
Chase,
U.S.
Bank,
and
Wells
Fargo,
but
there
are
smaller
players
out
there
as
well.

Before
they
failed,
First
Republic
Bank
offered
special
portfolio
mortgages
to
high-net-worth
clients
that
couldn’t
be
found
elsewhere.

They
came
with
below-market
interest
rates,
interest-only
periods,
and
other
special
features.
Ironically,
this
is
what
caused
them
to
go
under.
Their
loans
were
basically
too
good
to
be
true.

It’s
also
possible
to
find
a
portfolio
loan
with
a

local
credit
union
as
they
tend
to
keep
more
of
the
loans
they
originate.

For
example,
many
of
them
offer
100%
financing,

adjustable-rate
mortgages,
and

home
equity
lines
of
credit,
while
a
typical
nonbank
lender
may
not
offer
any
of
those
things.

Generally,
portfolio
lenders
are
depositories
because
they
need
a
lot
of
capital
to
fund
and
hold
the
loans
after
origination.

But
there
are
also
non-QM
lenders
out
there
that
offer
similar
products,
which
may
not
actually
be
held
in
portfolio
because
they
have
their
own
non-agency
investors
as
well.

Portfolio
Loan
Interest
Rates
Can
Vary
Tremendously

• Portfolio
  mortgage
  rates
  may
  be
  higher
  than
  rates
  found
  with
  other
  lenders
  if
  the
  loan
  program
  in
  question
  isn’t
  available
  elsewhere
• This
  means
  you
  may
  pay
  for
  the
  added
  flexibility
  if
  they’re
  the
  only
  company
  offering
  what
  you
  need
• Or
  they
  could
  be
  below-market
  special
  deals
  for
  customers
  with
  a
  lot
  of
  assets
• Either
  way
  still
  take
  the
  time
  to
  shop
  around
  as
  you
  would
  any
  other
  type
  of
  loan

Now
let’s
talk
about
portfolio
loan

mortgage
rates,
which
can
vary
widely
just
like
any
other
type
of
mortgage
rate.

Ultimately,
many
mortgages
originated
today
are
commodities
because
they
tend
to
fit
the
same
underwriting
guidelines
of
an
outside
agency
like
Fannie,
Freddie,
or
the
FHA.

As
such,
the
differentiating
factor
is
often
interest
rate
and
closing
costs,
since
they’re
all
basically
selling
the
same
thing.

The
only
real
difference
aside
from
that
might
be
customer
service,
or
in
the
case
of
a
company
like

Rocket
Mortgage,
a
quirky
ad
campaign
and
some
unique
technology.

For
portfolio
lenders
who
offer
a
truly
unique
product,
loan
pricing
is
entirely
up
to
them,
within
what
is
reasonable.
This
means
rates
can
exhibit
a
wide
range.

If
the
loan
program
is
higher-risk
and
only
offered
by
them,
expect
rates
significantly
higher
than
what
a
typical
market
rate
might
be.

But
if
their
portfolio
home
loan
program
is
just
slightly
more
flexible
than
what
the
agencies
mentioned
above
allow,
mortgage
rates
may
be
comparable
or
just
a
bit
higher.

It’s
also
possible
for
the
rate
offered
to
be
even
more
competitive,
or
below-market,
assuming
you
have
a
relationship
with
the
bank
in
question.

It
really
depends
on
your
particular
loan
scenario,
how
risky
it
is,
if
others
lenders
offer
similar
financing,
and
so
on.

At
the
end
of
the
day,
if
the
loan
you
need
isn’t
offered
by
other
banks,
you
should
go
into
it
expecting
a
higher
rate.
But
if
you
can
get
the
deal
done,
it
might
be
a
win
regardless.

Who
Actually
Owns
My
Home
Loan?

• Most
  home
  loans
  are
  sold
  to
  another
  company
  shortly
  after
  origination
• This
  means
  the
  bank
  that
  funded
  your
  loan
  likely
  won’t
  service
  it
  (collect
  monthly
  payments)
• Look
  out
  for
  paperwork
  from
  a
  new
  loan
  servicing
  company
  after
  your
  loan
  funds
• The
  exception
  is
  a
  portfolio
  loan,
  which
  may
  be
  held
  and
  serviced
  by
  the
  originating
  lender
  for
  the
  life
  of
  the
  loan

Many
mortgages
today
are
originated
by
one
entity,
such
as
a
mortgage
broker
or
a
direct
lender,
then
quickly
resold
to
investors
who
earn
money
from
the
repayment
of
the
loan
over
time.

Gone
are
the
days
of
the
neighborhood
bank
offering
you
a
mortgage
and
expecting
you
to
repay
it
over
30
years,
culminating
in
you
walking
down
to
the
branch
with
your
final
payment
in
hand.

Well,
there
might
be
some,
but
it’s
now
the
exception
rather
than
the
rule.

In
fact,
this
is
part
of
the
reason

why
the
mortgage
crisis
took
place
in
the
early
2000s.
Because
originators
no
longer
kept
the
home
loans
they
made,
they
were
happy
to
take
on
more
risk.

After
all,
if
they
weren’t
the
ones
holding
the
loans,
it
didn’t
matter
how
they
performed,
so
long
as
they
were
underwritten
based
on
acceptable
standards.
They
received
their
commission
for
closing
the
loan,
not
based
on
loan
performance.

Today,
you’d
be
lucky
to
have
your
originating
bank
hold
your
mortgage
for
more
than
a
month.
And
this
can
be
frustrating,
especially
when
determining
where
to
send

your
first
mortgage
payment.
Or
when
attempting
to
do
your
taxes
and
receiving
multiple
form
1098s.

This
is
why
you
have
to
be
especially
careful
when
you
purchase
a
home
with
a
mortgage
or

refinance
your
existing
mortgage.
The
last
thing
you’ll
want
to
do
is
miss
a
monthly
payment
right
off
the
bat.

So
keep
an
eye
out
for
a
loan
ownership
change
form
in
the
mail
shortly
after
your
mortgage
closes.

If
your
loan
is
sold,
it
will
spell
out

the
new
loan
servicer’s
contact
information,
as
well
as
when
your
first
payment
to
them
is
due.