What is a Portfolio Lender?

What is a portfolio lender?

2 Answers

A portfolio lender holds the loans it makes and may service them itself as well. It doesn't sell them on the secondary market to investors (for example as mortgage-backed securities like a Fannie Mae or Freddie Mac lender does). Some large lenders do both--keep a portfolio of their own and sell loans to investors as well.

Washington Mutual was an example of a large portfolio lender. The fact that its loans didn't have to meet criteria established by investors on the secondary market gave the company more control over the products it offered. This was great for borrowers who wanted more "creative" loan options, such as stated income payment option ARMs. Unfortunately these loans proved to be unduly risky and the high default rate was a factor in the fall of Washington Mutual. These days, alternative lenders and products are increasingly difficult to find.

A portfolio lender is one which holds your mortgage in its loan portfolio.  In other words, the lender does not sell the loan to another entity.  It funds the loan from its depository base in most cases.  It also determines its own underwriting guidelines according to its lending policy. 

Some **advantages **this has over secondary market [sold to others] loans are the flexibility in underwriting, a more local decision is made, and knowledge of the community by the lender.  Some of the disadvantages might include a higher rate than a secondary market loan, a larger down payment and only having an adjustable rate product available.  Mostly smaller banks and credit unions offer portfolio loans which are also known as 'inhouse' loans.