By servicing the loans themselves and keeping them in portfolio, these lenders are able to take on greater amounts of risk, or finance loans that are outside the credit box because they don’t need to be resold to investors with specific underwriting guidelines.

These companies have the ability to bend the rules when they see a deal worth doing, whereas mortgage lenders that must adhere to Fannie Mae, Freddie Mac, and the FHA have very little wiggle room.

You see, most loans that are sold off are backed by Fannie and Freddie, or the FHA in the case of FHA loans, so very rigid underwriting standards must be met without exception.

Portfolio lenders, on the other hand, can create their own underwriting guidelines because they aren’t at the mercy of an outside agency if they’re actually willing (and able) to keep the loans they make.

A lot of small and mid-size lenders don’t have the same authority because they must sell their loans off on the secondary mortgage market due to liquidity constraints. And investors are becoming increasingly selective as to which loans are actually purchased.

Who Owns My Home Loan?

• Most home loans are sold shortly after origination
• So the bank that funded your loan likely won’t service it
• Look out for paperwork from a new loan servicer after your loan funds
• Unless it’s a portfolio loan

Many mortgages today are originated by one entity, such as a mortgage broker or mortgage lender, and 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.

Portfolio Loans May Solve Your Financing Problem

• Large loan amount?
• High DTI
• Low credit score
• Recent credit event such as short sale or foreclosure
• Late mortgage payment
• Own multiple investment properties
• Need an asset-based income loan

Now back to portfolio loans. If you’re having a tough time getting approved for a mortgage, or finding a particular type of loan, consider a portfolio lender.

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.

They also offer mortgages that fall outside the guidelines of Fannie Mae, Freddie Mac, the FHA, the VA, and the USDA.