Latest from the Mortgage Blog
Is A Portfolio Lender Right For All Transactions?
I wanted to write about the benefits, and pitfalls, of a portfolio lender. At Hallmark, we do not have portfolio loan programs at this time, but from time to time, I run into loans that would fit best in a portfolio program. Over the years, I have built relationships with local lenders that have portfolio loans, and always reach out to them, if the traditional route does not work. My number one goal is making sure the deal gets done, even if I can’t do the loan.
What is a portfolio lender?
Portfolio lenders are banks that lend their own money, and keep and service the loans after closing. For this reason, they do not worry about making sure that the loan meets Fannie/Freddie guidelines, only that the loan meets their internal guidelines. Portfolio lenders use significantly different underwriting techniques when reviewing the loans, and often overlook traditional underwriting hurdles that we see, like not being self-employed for 2 years, and high debt-to-income ratios – this can really make a deal happen that would be doomed in the traditional lending world.
As an example – I was working on an loan for a physician who had most recently been working in Africa the last 3 years doing missionary work, and had not filed US Tax Returns for those years. These days, that pretty much rules out a traditional mortgage. I reached out to a portfolio lender, who was able to do the loan -- no questions asked about tax returns -- once they saw the large down payment, and good credit history. This is a perfect example of the niche market that portfolio lenders can successfully serve.
There are very real drawbacks to using a portfolio lender:
1. A 20% down payment (or more) is required. A lot of clients I work with, and almost all first-time buyers, do not have a 20% down payment
2. Portfolio loans are never a 30 year fixed. These loans are typically 5/1 or 7/1 ARMs, that are only fixed for the initial terms, after which the rate will adjust. 99% of clients I spoke to over the last 5 years, have only been interested in a 30 year fixed loan.
3. Most portfolio lenders will, in addition to portfolio loans, also offer traditional Conventional financing. On traditional programs, portfolio lender’s interest rates are typically higher than the market average. So if you are looking for a traditional 30 year fixed, less than 20% down payment loan, it is not in your best interest to go straight to a portfolio lender first.
4. Portfolio lenders do not offer VA or FHA financing, which are the best loan programs for some buyers
5. Traditionally, perfect credit scores are required, so previous bankruptcies, foreclosures, collections, high credit card debt balances can often rule out a portfolio loan
In conclusion
Portfolio lenders serve a great niche in the market, but may not be the right choice for every borrower, in every situation. A home buyer will find more options and better interest rates/terms speaking to a traditional lender like me, first. After reviewing the file, if I cannot get them the best terms on a traditional loan, then I will personally reach out to a portfolio lender to see about their options. If they can help, and the buyer is ok with an ARM loan, and can come up with the large down payment, then they’ve got a deal ready to close!
Call me with any questions you may have on portfolio vs. traditional lending, I would be glad to help!
Denver Home Sales Remain Strong
The Denver market has remained strong, even during the traditionally slower months of August and September, as families hesitate to move during the time when kids go back to school. It is very nice to see some balance again. This past Spring, we saw an extremely wild market which was not sustainable. Sellers, buyers, Realtors and lenders were losing their mind, trying to keep up. We would see 20+ offers on one home, the day it went on the market, pushing the price up and up. This may seem good for sellers, but it was not, based on my experience, unless the offer was made by a cash buyer. We had more appraisals come in lower than the purchase price, during this Spring, than I had had combined in the past 11 years! In every single case, the seller ended up lowering the price, or the buyer had to put more money down, or a combination of both. It was really the wild west, with showings on homes taking place at 9pm, and the home going under contract the next day. The "wild west" of this Spring was hectic, and fun at times, but not sustainable. The current market we are seeing now still has historically low inventory, but it is more in balance, and is a positive for the health of the market.
http://www.denverpost.com/breakingnews/ci_24224555/denver-housing-market-is-stong-autumn-months
How Will The Government Shutdown Affect Lending And Your Transaction?
http://www.youtube.com/watch?v=A8IDpJk3MEM
Buying After A Short Sale
With the economy and housing market doing what it did since 2008, I am speaking to more and more clients that had a short sale in their past. Here are some guidelines to help during the next pre-approval. HUD has just announced some radical new changes if the short sale was a direct cause of the economy, and banks are still evaluating them. For now, I wanted to share the current (i.e. accepted by all banks) guidelines.
First, it is important to establish the "Completion Date"
1. If the old loan was a Conventional loan, the settlement date, or closing date on the HUD-1, is the “completion date”.
2. If the old loan was FHA or VA, and HUD paid a premium to the lending bank, then the date the premium was paid, is the “completion date”. This is often after the date that everything is signed. Your lender can check on this quickly by doing a CAIVRs search.
Second, we talk about the new financing that the buyer is trying to obtain
If the new financing is FHA, 3 years must pass from the settlement/completion date. There is a small loophole that if the client made no late payments on the old loan, and was relocated to a new state by an employer, and the short sale was due to that reason because the home was underwater, and could not sell, then they can buy right away with a new FHA loan.
If the new financing is VA, 2 years must pass from the completion date. Sometimes exceptions can be made if the short sale was due to relocation while in service, and there were no late payments, I have seen some get approved as soon as 1 year after the completion date.
If the new financing is Conventional, it gets more tricky. A borrower can buy after 2 years with a 20% down payment, 4 years with a 10% down payment, and must wait 7 years for a 5% down payment loan. Borrower must have re-established credit since the short sale, and no late payments.
Call me with any questions at all!