Monday, October 20, 2008

Portfolio Loans

Q: What is a portfolio loan?

A: A portfolio loan is a loan that is maintained by the lender and is not sold to another lender, Fannie Mae, Freddie Mac, et al. It is a loan that the lender keeps in its own portfolio, or group of investments. In the old days before the sub-prime mess (6 - 12 months ago), portfolio loans very often had relaxed underwriting guidelines. If the loan was not being sold to Fannie Mae, for example, then the lender did not have to comply with Fannie Mae's underwriting guidelines. Many portfolio lenders have gone out of business because so many of these loans went into foreclosure. Indymac Bank is a good example of a portfolio lender that is no longer in business. Some portfolio lenders still exist, but generally speaking, the underwriting guidelines for loans they will retain in their own portfolio are just as strict as the guidelines for loans that will be sold to another lender.

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