Rather than trying to sell mortgages to institutional investors, portfolio mortgage lenders are investment firms or banks that offer mortgage loans that they retain in their investment portfolios, explains the Mortgage Almanac. Frequently, portfolio lenders are small, community-based banks that can offer greater flexibility in loan qualifications and terms, although the approval process for such loans may be more challenging.
Since portfolio lenders offer their own money, they do not have to conform to Fannie Mae guidelines, states InvestFourMore. They can provide financing for more properties with one buyer than a traditional lender, and they may offer cash-out refinancing with alternative financing options. The downside of portfolio mortgage lenders is that they often offer fewer loan program options than larger institutions.
With a portfolio lender, many of its options and terms rely on the relationship between client and provider, notes InvestFourMore. Most often, the lender requires a borrower to have all of her accounts and money in its bank with the expectation of a long-term professional relationship.
Lenders who intend to sell mortgages to Fannie Mae and Freddie Mac must adhere to strict guidelines for underwriting, states the Mortgage Almanac. While a portfolio lender is not tied to such guidelines, it must make careful business decisions while balancing the needs of customers.