After the 2008 mortgage meltdown, a large number of Asian buyers very wisely swooped in to buy CA residential real estate on the cheap.
Many came to us for financing and we often could not help them b/c they were not U.S. Citizens, even though they had high incomes and large down payments.
We would refer them to a Bay Area bank that specialized in such buyers and that held all of its loans in its portfolio and was thus not subject to all of the tight guidelines that we were.
A portfolio loan is a loan that is held (lenders “hold” the promissory note and deed of trust) and serviced by the lender that makes the loan.
Portfolio mortgage loans are very rare these days, as almost every mortgage funded is packaged and sold on the secondary market, usually to end up as a mortgage backed security.
All Fannie, Freddie, FHA and VA loans are ultimately sold on the secondary market, as are many jumbo loans.
This is why lenders have to be so strict with guidelines and why lenders can’t offer “make sense” loans, e.g. a buyer with excellent credit and ample cash reserves putting down 35% but doesn’t qualify b/c of limited income.
Investors that buy mortgage backed securities require that every mortgage behind those securities meets the exact same guidelines.
Portfolio loans appear more appealing b/c borrowers can maintain relationships with their original lender and b/c borrowers can garner “make sense” financing, without having to comply with seemingly petty guidelines.
But if all loans were still portfolio loans, with no secondary market, rates would be much higher and there would not be anywhere close to enough capital to fund all of the residential real estate transactions in the United States.
Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646
