Portfolio vs. Securitized Mortgages
OK, so that’s not exactly how the Alexander Graham Bell quote (headline above) goes.
But, it applies — sometimes — to mortgages.
Specifically, there are numerous situations where what’s called a conforming, “conventional” loan — intended to be re-sold (securitized) on the secondary market — isn’t feasible, but a “portfolio” loan held by the lender is.
I’ve run into three condo buildings in just the last month where a deal was possible only after finding a lender willing to make such a portfolio loan.
The Golden Rule
Because a portfolio loan is held by the bank or lender making the loan, it can decide what the underwriting criteria will be.
In practice, a portfolio lender may be willing to overlook “yellow flags” like a Condo building with a too-high investor-to-owner ratio; a potential legal liability; or even a large, unpaid Account Receivable owed the building association (by a commercial tenant occupying a first-floor space).
In each case, the added risks were offset by the Buyer/borrower’s strong credit and a hefty down payment (over 20%).
The catch: such lenders are often smaller and local, and take more work to find.
