Privately Held Portfolio Loans

There are a number of misconceptions about portfolio loans that have been proliferating. This is mainly due to the fallout of the current subprime mortgage crisis and the resultant bailout. That is to say, much of the public looks disapprovingly on non-traditional forms of lending. Since portfolio lending is a different type of loan, many assume these loans fall into the category “bad” loans. However, portfolio loans are not inherently risky loans. They simply are loans used for a specific purpose when certain criteria exist. In order to dispel some of these misconceptions, it is important to clearly define what it is portfolio loans entail.

A basic definition of portfolio loans centers on the notion that the loans in question are kept within the portfolio of the lending institution. The portfolio loans will not be traded or sold to other lending institutions. They will stay in house and be managed by the lending institution. From this, a major misconception develops. Specifically, there is the assumption that the person borrowing the money must be some sort of bad payer. After all, how could the person be a good payer if the loan is not being sold? Well, to assume that all portfolio loans are risky loans that never should have been issued is quite the unfair assessment.

Portfolio loans are issued for different reasons based upon the individual circumstances of the borrower. Depending upon the borrower’s individual situation, a portfolio loan may be the better option for both lender and buyer. For example, the reason behind the borrower’s financial situation may be considered risky to a bank. This may lead to an application for a traditional mortgage being denied.

This is not as dire a situation as some might assume. There is always the option of seeking financing from a portfolio lender. If the reason for the loan is viable, the portfolio lender may be more inclined to approve the loan whereas a bank might decline.

For example, let’s say someone has the opportunity to purchase three homes that are in a location prime for condo development. The equity of the homes may skyrocket in value within a short period of time. However, the borrower does not have the liquid capital to make down payments on the home. As a result, a traditional mortgage loan might be denied.

However, a portfolio lending institution may not have a problem lending to someone with no money down. (Again, many portfolio lenders emerged from the subprime mortgage crisis unscathed.) In such a situation, the lender can issue portfolio loans to facilitate the purchases. This way, the acquisition of the investment properties goes forward and no opportunities are missed. Is there risk involved with portfolio loans? Of course there is; but, there is also opportunity for great rewards as well.

If it was not for portfolio loans, the real estate market might have completely dried up. Hopefully, as more and more people become aware of portfolio loans, they will increase in popularity and, perhaps, replace the damaged traditional lending venues

by Susan Lassiter-Lyons - March 31, 2009

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Source: http://www.portfolioloanblueprint.com