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Features & Benefits of Portfolio Loans

01-27-12
Paul Luykx
Portfolio loans can be a powerful alternative to many common lending restrictions of the mainstream - Fannie Mae, Freddie Mac, FHA type programs. Because portfolio loans are retained by the lender and are not sold in the secondary market, lenders make their own, common-sense rules, specifically to offer alternate solutions. Below are the highlights. /// In the next issue, a summary of the stipulations for converting a property from owner-occupied to non-owner occupied. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker (What's a Mortgage Banker?)
Portfolio loan features/benefits
The list below is incomplete because a portfolio loan can be "a fit" in so many unique circumstances. As you read through it you can probably think of a few of your own situations yourself. In addition, because the documentation and verification standards are different, sometimes a portfolio loan is a solution just because the paperwork, or circumstances are not a fit for another type loan. (The documentation requirements for condos for example is a lot lighter).
  • No Mortgage Insurance to 90% LTV
  • Jumbo loans to $5,000,000
  • HELOCs to 85% LTV. Great for REO investors with "free and clear" homes
  • 2nd fixed rate mortgages to 85% LTV
  • 620 min. Fico
  • 50% max. Debt To Income (DTI)
  • One month (rolling) mortgage late allowed
  • Vacation homes to 80% LTV
  • 3-4 Family Owner Occupied to 80% LTV
  • 1-4 family investment to 80% LTV
  • Condominiums with <40% rental units
  • No rate add for acreage
  • No rate add for any loan <$1,000,000
  • No rate add for cash-outs
  • No rate add for condo, manufactured/modular homes
  • No rate add for escrow/impound waiver
  • No rate add for rural properties
Any questions?
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Mortgage decisioning criteria, and why you care!

01-25-12
Paul Luykx

Program Rules - Lender Rules- Underwriting - are the 3 levels of lending criteria that culminate into a loan approval. Mortgage financing is a key element of the purchase process, so it pays to understand the process. A synopsis below.... /// In the next issue, a summary of the current benefits of portfolio loans. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker (What's a Mortgage Banker?)

Program rules
All mainstream mortgages are subject to universal program rules. If lenders do not follow these rules they will not be able to sell the mortgages (which virtually all are), OR WORSE - lenders will be obliged to buy loans back at a later stage. It is the fear of buybacks that drives the current over the top scrunity. Buyback processes can be huge! and are virtually always initiated for non-performing loans (we've seen a few of those as of late I think) - so there is a risk that a lender has to buy back all non-performing loans ever originated if it does not strictly adhere to the program rules. Imagine the fear this instills into the business environments at mortgage lenders nowadays!
You can find all program rules (FHA, Fannie Mae, Freddie Mac, USDA, VA) at my Information Center.

Lender rules: "Overlays"
In addition to the program rules referenced above, all lenders have their own, unique underwriting criteria, usually called "overlays". Lender overlays are mandated by the risk tolerance of the lender, or the investors who buy the lender's mortgages. Overlays are what makes one lender different from another. As an outsider you will never know what the forever changing details/differences are, which is why you need the support of a knowledgable mortgage specialist - and here is why you are best of dealing with a mortgage banker.

Underwriting
Underwriters are charged - and burdened! - with making loan decisions in the highly charged, risk adverse environment I described above. Now more than ever they need perfected loan applications, in full compliance with often changing rules, and then some! They appreciate additonal details, documentation, narratives, notes, etc. Underwriters really want to approve loans, but we need to give them the tools and comfort to do so! This is why borrowers need to be encouraged to volunteer information, and deliver complete documentation (and more of it, rather than less), quickly.
Note that Underwriters do not "have to" approve any loan. It's rare, but it is possible to be declined - even if everything fits. Conversely, underwriter discretion can work in the borrower's favor as well where a loan gets approved that would in most other cases be declined. Here again is why you need to work with a mortgage expert, skilled in loan advocacy and matching presentation techniques to make sure loans get approved.

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Mortgage lender, banker, broker: Big differences, and why you care!

01-23-12
Paul Luykx

There are important practical differences between a Mortgage Lender, Mortgage Banker, and a Mortgage Broker. Mortgage financing is a key element of the purchase process, so it pays to understand the options. It is particularly good to understand the mortgage banking concept, which allows you to in effect make full application to many lenders all at once - very advantageous in today’s mortgage environment! /// Next week a synopsis of loan decisioning, also useful to know, and the week following a summary of the current benefits of portfolio loans. /// Comments, questions, service? Contact me. – Paul Luykx, Mortgage Banker

What they are
>>Mortgage Lenders are usually depository institutions (banks, credit unions). They have a single line of products and unique lending criteria. All mortgages are sold in the secondary market (mostly Fannie Mae, Freddie Mac).
>>Mortgage Bankers use their own money to fund mortgages. They sell the mortgages either to Mortgage Lenders, or the secondary market. They offer a broad range of loan products and have the flexibility of matching an application with the lending criteria of an investor to whom they sell loans. Mortgage banking is now the hottest business model in mortgage financing because you are in effect applying to many lenders, all at once!
>>Mortgage Brokers are intermediaries who brings mortgage borrowers and mortgage lenders together, but do not use their own funds to originate mortgages.

What they have in common
>>Pricing: Lenders need to pay for all loan originations
somehow, whether they pay their own sales force, their own branch network, bankers, or brokers. At the end of the day rates and fees are therefore pretty similar.
>>Equal pricing: Commissions no longer depend on the rate charged so the focus is now always on getting the approval on the best possible terms – lender, banker, or broker.
>>All loans are sold in the secondary market, portfolio loans excepted.

The differences
The practical differences between a lender, banker, and broker, are the breadth of loan programs offered, expertise, and loan decisioning:
>>Mortgage lenders are limited to their own mortgage products and lending criteria. If your application is handled by an application-taker instead of a capable mortgage specialist, you are at risks of delays, or denials.
>>Mortgage Bankers (like me) have expertise, a broad product offering, and the flexibility of matching and approving applications with the criteria of one of their many investors. You are in effect applying to multiple lenders at the same time!
>>Mortgage Brokers have expertise and choice of lender, but do not approve loans. If a lender declines a loan it needs to be submitted elsewhere.

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Do Fix & Flips with our money - or your money...

01-15-12
Paul Luykx

We are still faced with the best real estate opportunities of a lifetime. As sad as it is to say, the economic malaise continues to serve us very well. My investment group is interested in funding

highly profitable (fix and) flip projects - up to 100% of hard cost.

INVESTMENT CRITERIA

Our investment criteria are as follows:

  • 1-4 family properties only. (2,3,4-family preferred)
  • Preferred investment size: $20K-$100K ($200K max)
  • NJ, NY only
  • ARV (After Repair Value) of at least 150% of hard (purchase and rehab) cost
  • Cross-collaterization on other properties considered.

If you are interested in:

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Rate projections from the Fed - Pay points? - John Sr & John Jr...

01-13-12
Paul Luykx

Fed will publish short-term rate projections
The Federal Reserve will now tell the public its expectations for short-term interest rates, starting after its Jan. 24-25 meeting. I find this odd, and here is why...

>>Reliability. If market realities change, the Fed may need to adjust rates. That is the Fed's job first and foremost.

>>Conflict of interest because the Fed may not want to contradict itself, and hesitate to take needed actions that conflict with its own projections.

>>Confusion. This pertains to short term rates, NOT (long-term) mortgage rates. People are constantly confused about this. Mortgage rates are primarily determined by capital markets. I am also concerned consumers will opt for ARMs as a result, rather then long-term security of fixed rate loans.

>>Independence. To my mind the Fed needs to be independent, and anything that takes away from it is a slippery slope, that can ultimately affect confidence in US monetary policy.


Pay points?
If you plan on owning a property for longer than 4 years and want the comfort of a 30-year rate fix, you may want to consider buying down the rate (pay discount points). A rule of thumb is that a 1.00% "discount fee" or "buydown", results in a 0.25% reduction of the note rate on a 30-year fixed rate loan. (Your payback period is about 4 years). And over the life of the loan you will save about 4% of the original loan amount. More information
Pay 1.00%, 4 year payback, save 4% of the loan amount: 1-4-4.

John Sr and John Jr...
I am not here to tell you not to give your kids your first name, but know this: You are at risk of credit report mixups, and correcting it may take time and money, especially if derogatory items are involved. Applications may be declined, delayed, or not approved on best possible terms. I have have come across a few nasty situations lately, and I thought I'd share it with you. Oh.... same first name and different middle initial is not an alternative. - P


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