My favorite mortgage word has to be “Portfolio”. My next favorite mortgage word is “Jumbo”. Both words in the same sentence can make my little heart go pitter patter....particularly in today’s market of “CYA” (cover your analysis) underwriting, investor over lays (FHA does that, but “I, the Investor Overlord” also want this) and documentation over load (approvals of loan are based on by the pound, not the content).
To clarify, “Portfolio” lenders are usually private equity funding sources. Not to be confused with “equity lenders”, which are usually hard money, high risk investors with the pricing and point structure to make your heart stop....not go pitter patter!!! Think in the range to 10% to 15% interest rate and 5 to 10 points....with a prepay! GULP!! Beyond getting a “equity loan”, it is almost always imperative to have an exit strategy to refinance or sell before a default occurs. Many “equity lenders” calculate the viability of the exit plan into the decision of whether to approve or decline the loan request.
On the contrary, “Portfolio” lenders are generally common sense driven. Their guidelines are not loosey goosey, but they are founded in the true “risk/reward” model. The pricing is reasonable because the investors want the borrower to be successful in repayment AND keep the loan for the long haul. “Portfolio” lenders are not tied to Fannie/Freddie/Ginnie/FHA/VA guidelines and the loans are not sold on the secondary market. Because the investors are taking the full brunt of the risk and there are no industry or governmental overlays they can set their own lending criteria....that generally means “make sense”.
Setting the lending standards and guidelines allows for specific flexibility, but does not mean the lender is exempt from State and Federal finance and fair credit laws. The best, and most well-known portfolio lender, was World Savings(formerly Golden West). Golden West/World operated successfully and was very profitable for 25 years before it was sold to Washington Mutual. In fact, World Savings was the lender of choice for the good credit, great equity self-employed borrower. Yes, World was one of the first to offer the “pick a pay” option arms (the loan now ludicrously referred to as “toxic”). The loan product was perfect for the self employed/commissioned person who was financially savvy, had a lot of equity and was property educated about the terms of the loan product. Alas, the product was “released” to anyone and given to everyone in the heat of the market in the early 2000’s.
To be sure I do not see the pick a pay, option ARM coming back into the marketplace. However, what I do see is private equity lenders/investors recognizing the tremendous opportunity of developing their own product line(s) and underwriting standards that are based entirely on a “risk/reward” model that meets each entities specific business model. No government or secondary market overlays will influence or impact the pricing or the approval of the loan package.
When working with “Portfolio” lending every loan package is a stand alone, independent business transaction between the borrower and the lender/investor. The “art of packaging a loan” is paramount because the mortgage advisor is putting his/her “best foot forward” in representing the borrower. Whether or not the loan package is approved very literally depends on how well the mortgage professional compiles and presents the loan package.
I am delighted to find that the emergence of “Portfolio Jumbo” lenders is making a come back. The guidelines are reasonable and the pricing is very close to conforming product. More over, “Portfolio” lenders make their own rules and exceptions to specific guidelines are as much the norm as not. The product lines are extensive enough to satisfy most borrowers needs and, well not available in every state, the desire to lend “Portfolio” is unprecedented as compared to the past couple years.
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Deborah "Dee Dee" Garvin
NMLS #279125
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Slowly but surely. We really do need somewhere for jumbo loans. I have heard some rumblings going on, but nothing for sure as to who it may be moving into the market. I would love to know if you have insider information!!
Stephanie, I don't know that I have inside information as much as I have finally turned over the right rock. At one particular source the AE has been in the business for 28 years....I think her guidance is something I can count on!
Debroah: It's true. We've seen more jumbo loans here recently. Perhaps that signals a return to better times down the road. We shall see!
Paul, Great to see you here! I am completely jazzed about what I am seeing...I would love to send you the investor guides for one specific investor but they are not lending in Washington. Silly peeps!!
Jumbo lending does seem to be making some of a comeback. Interest rates are improving on them as well.
Rodney, What really pleases me is that I now have sources that have final signatory authority (no second level underwriting required) and no second appraisal needed. Goodness knows, I am glad we did not regress to the days of pool insurance (and I don't mean swimming pools!! LOL!)
That two appraisal rule can be challenging sometimes. In GA, we really haven't seen nearly as many jumbo loans as we used to.
I am finding investors who are not requiring a second appraisal or a field review. That alone tells me things are evening out. The resurrection of the move up buyer and the jumbo buyer has been crucial is every market I have endured. Getting a first time buyer to buy is not the challenge....getting the move up buyer to buy is the missing link.
Deborah,
Thanks for getting this info out there. Last week Goldman Sachs picked up a $6B securitization of non-conforming mortgage backed securities and there have several other successful securitizations in the past few months. The liquidity is defiantly back in the non-conforming secondary market so you should see many lenders jumping back in to the jumbo space in your market. Lets just hope that this time around we all learned something from the mistakes of the past....