Portfolio Loan DefinitionA portfolio loan is a loan that is serviced by the lender that issued the money. Here are the basics of the portfolio loan and how it works. |
Loan ServicingIn most cases, loans that are issued by a lender are packaged together with other loans and sold in the secondary market. With a portfolio loan, the lender that initially wrote the loan is going to hang onto it and keep it as part of their investment portfolio. The 2 things that are most commonly sold are the "servicing" of the loan (collection of monthly payments) or the actual "promissory note". |
Not a "one size fits all" or "vanilla" loanMost loans are granted to home loan borrowers using standard documentation of income, employment, assets and property "collateral" types. For example:
*Ginnie Mae is a government-owned corporation that guarantees bonds backed by home mortgages that have been guaranteed by a government agency, mainly the Federal Housing Administration and the Veterans Administration. Portfolio loans often fill a specific need of a borrower. Here are just a few of the many situations where a portfolio lender can help:
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The "Low Hanging Fruit" in the Big Bank Lending WorldTypically, most loans are granted after an automated decision of creditworthiness is determined by a computer when submitting the borrowers credit report and other information on the 1003 loan application. There are three main decision approval systems used:
If an approval is not granted by one of these 3 systems, the the loan file (application) must be manually underwritten. Often when this happens the loan originator or mortgage consultant will need to ask for extra documentation to get the loan approved. The majority of bank loan officers, home mortgage consultants and direct lender loan advisors will hit a brick wall if they cannot get approval from their underwriting department at this point. This is where the mortgage broker shines with portfolio loan programs, because most big banks are very "thin" on loan options for their clients when the "vanilla" loan programs don't work. So, most loan officers just move on to the next customer to see if they can approve that customer's loan. Brokers with Portfolio Loan Programs are BetterUnlike the "vanilla" loan programs that all the banks offer... there is a whole world of portfolio loan programs that can turn a Bank Decline Letter into an "Approved". Why? Because portfolio loans are manually underwritten right from the start, not as a last recourse response to a Ineligible Decision by a computer program. Portfolio lenders know what they are willing to lend on... and often make exceptions if the loan makes sense. What a novel idea... personal banking that grants loans base on each borrowers unique situation! |