Portfolio Lender

A portfolio lender is one who holds onto the loans it originates instead of selling it on the secondary mortgage markets.

Because portfolio lenders don’t pass on their loans to institutional investors on the secondary market, their loans do not have to be originated according to a certain standard which that market demands.

This lack of buyer requirements means that they can sometime be very flexible in their underwriting criteria.

This positions them firmly between traditional lenders and sub-prime lenders.

Sometimes you might even find that home loans can be approved against all odds. This is due to them focusing on factors that matter to them that are ignored by big banks.

Other than selling their own loans, some portfolio lenders also sell loans that will eventually be released to the secondary market.

This makes them a hybrid lender of sorts. A fusion of lender and broker.

However, in order to push their own loans, they often offer better compensation to their loan officer for selling their own portfolio loans compared to loans that would be sold.

Because of the inherent risks they take up, they are usually not very competitive in the market of fixed rate mortgages.

Most, if not all, of their own loans will be ARMs so as to mitigate the risks of volatile interest rates.