In the San Francisco and surrounding markets, mortgage products come to mind in just a few ways. The term “jumbo” financing is certainly most common when thinking of loan options. Conventional and even FHA financing are prevalent, as well. When it comes to portfolio loans, the understanding is not as common, nor is the term itself. However, it is something all buyers out there should make themselves more familiar with to keep as an option when considering all types of possible financing.
So what exactly is a portfolio loan and why should you care? First, a “portfolio” loan is one that is originated by a lender and then held (or kept in the portfolio for that bank) for the life of the loan. Non-portfolio loans work very differently than this. For example, imagine a lender here in San Francisco that has $500 million in capital that it can lend out for mortgage. If the average/typical mortgage here in the Bay Area was $500,000, hypothetically, the lender could make 5000 mortgages here in the local community. Once the lender has issued its 5000th mortgage and run out of available capital to lend on, the lender will sell the loans that are on its books, so to free up capital and create new mortgages. Those loans are sold on what is called the “secondary” market. Two of the bigger players in the secondary market are Fannie Mae and Freddie Mac, which most all consumers have heard of at one point or another.
In order for loans to be sold in the secondary market, they have to meet strict financing standards, with the guidelines being different for each type of loan (FHA, VA, Conventional, etc). However, when a lender keeps the mortgage, or portfolio loan in this case, it is not required to make any standards. These loans can be underwritten to just about any standard since the loan will remain with the lender on their books.
As a lender and mortgage originator, I know first hand how difficult it can be to get a mortgage. Often, it seems that only the best borrowers are getting loans today, and those loans are scrutinized and underwritten so strictly, that hardly any of them go into default. This is and remains a reaction and correction to the housing crisis of 2007. But a default environment that is near ZERO is evidence that credit should be expanded and loans provide to borrowers with less than perfect credit backgrounds/profiles. So, if you are a borrower that is falling just short of qualifying, or your credit score is a few points off from the requirement, or your debt-to-income ratio is just above the Fannie/Freddie limit, a portfolio loan can be a solid avenue for you to pursue. These loans make home ownership possible, so to learn more about them or receive a loan quote, please Email Me.