Portfolio Lending – A Safer Bet
What do Chase, Citi, Bank America and Wells Fargo have in common?
They all sell their loans to Fannie Mae & Freddie Mac. These banks do not “Lend” their own money. Rather, they do business like a broker. This is concerning as Fannie & Freddie continue to need billions in tax payer money.
This means if your loan does not fit the “underwriting matrix” required by Fannie/Freddie you are not getting financing.
Portfolio lenders use “common sense underwriting” practices because they do not broker their loans to Fannie/Freddie. Therefore, they have more flexibility with their decision process.
A good example is someone who has a derogatory mark on their credit report. A Portfolio lender will consider other compensating factors such as, cash assets, strong appraised value, and stable employment. While the automated underwriting system for Fannie/Freddie loans may decline it.
Mortgage Bonds Continue Lower
Mortgage Bonds moved lower today on a report that there could have been a large foreign seller in the market.
The benchmark 3.50% coupon fell 16bp to end the week at $99.44.
We continue to maintain our bias toward locking into mortgage rates.
Fannie Mae 3.50% $99.44 -16
Hence, the “Portfolio Lender”. A Portfolio lender is a bank that makes loans from their deposit base, much like the Bailey Savings & Loan in the Holiday movie classic “It’s a Wonderful Life” , which we’ll be watching soon as the Holidays are around the corner.
Another benefit of “Portfolio Lenders” is they generally have better terms for Jumbo Loans, can have longer rate lock periods (90+ days) and no tax escrows required at closing . They also do not have to abide by the HVCC (Home Valuation Code of Conduct) appraisal law that requires lenders that sell loans to Fannie/Freddie, to use appraisers through central management companies.
The HVCC law has been problematic as the appraisals are not portable (cannot be used with multiple lenders), the management company pays the local appraiser half of his normal fee (happy appraiser?) and most importantly, the out of state management companies that have the final say on the appraised value, do not know your homes local market the way a traditional appraiser does. So appraisals generally come in under valued.