Bank Portfolio Loans
Shortly following the implementation of the CFPB FINAL RULES handed down by the Consumer Finance Protection Bureau (CFPB) the Note Servicing Center (NSC) received telephone calls from various banks within its’ own geographical service area. The banks all had primarily the same characteristic or profile. They were for the most part State Chartered Banks funded by local business people and local private investors and they loaned to developers and business ventures in the local community. Some of the investors on the Board of Directors were in the Agriculture Business in the Central Valley stretching from Bakersfield to North of Sacramento and reaching from the Pacific Range to the Sierra Nevada to the East.
We knew already they did not sell their loans upstream to Wall Street through Brokers, but rather kept the loans “in house” as Portfolio Loans. Their reserves are still held within the Federal Guidelines remain regulated by the FDIC and other regulatory agencies. But what we didn’t know (and if you are reading this you probably know very well) was how many Community Banks existed. Sometimes the Portfolio loans are not a specialty for the Bank, but simply held by the Bank because they do not fit the guidelines of the Investors on Wall Street.
Now, we also know most Community Banks service their own loans and were not prepared to take on the training, cost and risk of servicing the loans originated under the new Dodd-Frank regulations. And addition twist involved the servicing of loans that were being serviced by the bank for bank customers as an accommodation to their customers who had seller carry-back loans. These they had to get rid of post-haste.
Flexibility is the operative word a borrower looks for in applying and being approved for a Bank Portfolio Loan. The rates are usually about the same but the advantage to both the bank and the borrower is that the mortgage usually will not be sold off many times over the life of the loan and you have the rare opportunity of dealing with the decision maker or the bank operations officer if and when a problem arises.
Another advantage to obtaining a portfolio loan is the lender will have programs or guidelines not typical of loans sold on the secondary market which follow FNMA and FHLMC guidelines. Therefore you may be able to obtain a certain loan program not normally available due to your specific situation or due to the type of real estate used for security for the loan.
Portfolio loans are mortgage loans in which a lender will loan their own money and have minimal plans of selling the loan or transferring servicing to another bank or lender. For developers in suburban and rural areas a hometown portfolio lender is often the only available source to obtain loans on unimproved property, rehab property and/or real estate located in transitional zones. Also, it is not unusual that in these geographical areas, homes and commercial properties do not conform to the “cookie cutter” guidelines required for loans to be sold in the secondary mortgage market.
Portfolio lenders often are created by a well heeled group of community oriented private investors who promote and support development in these small communities. In fact, many are called “Community Banks” and often, though entrepreneurial, hold to conservative guidelines as the loans are typically held for an extended period of time.
For income producing properties, the cap rate is important to this type of lender as well as the affordability index. They also look closely at the overall General Plan of the area which will give them a clue as to the trend for economic growth and the ideology of the governing bodies. Appraisals and LTV along with other underwriting functions are typically performed “in house” and decisions are made by the Banks Board of Directors. Since they intend to keep the loan, in the event they have to foreclose they want to make sure that the property will resell, quickly, and for at least what they lent on the property. Very few actual portfolio lenders exist these days; however, there are still lenders with specific niche products particular to the local economy in which they operate.
If you are a Portfolio Lender, our experience indicates that the “in house” note and loan servicing you provide for the borrowers is typically allocated as an added value to the customer and thereby providing a competitive edge. Although typically paid for by the borrower, sometimes this is earmarked as a marketing expense.
Our company changed its’ name in 2005 to the “Note Servicing Center” to specifically serve Portfolio Lenders, Hard Money Lenders, Investor Groups and Mortgage Brokers. Obviously, this strategy involved “outsourcing” or “subservicing” which provides the lender customer service while saving overhead involved in purchasing computer hardware and software, hiring and training employees, dealing with retention and allocating office space. The Lender does not lose control, in fact can review the status of all accounts 24/7 on line with a password protected server.
The Note Servicing Center provides the Borrowers with payment coupons and envelopes, annual 1098’s, monthly statements and personal customer service. They have the ability to make their payments by check or money order, on-line, by ACH or Credit Card with the funds deposited electronically and directly into the Bank’s Account. We do the collection and processing daily, send out late notices and prepare year end 1099’s and monthly and annual statements. In addition, several bank clients negotiate an agreement which results in an additional profit center for the bank. The bank sets up their own fee schedule, outsourcing to the NSC on a bulk rate resulting in the retention of the margin of profit. Please contact us for more information or an appointment for a consultation to determine how best we can meet your needs.
If you are a lender with a bank portfolio, we have good news for you. The Note Servicing Center is CFPB and RESPA Compliant. When you turn over your loans for servicing you relax and rest assured you are in compliance and at an affordable price. We have been at this for well over 30 years now, long enough to manage and manipulate even the most difficult situations and deal with the “rules of the road”.