I have learned a lot about portfolio lenders since Fannie Mae and Freddie Mac started attacking real estate investors. Honestly, portfolio lenders are not as easy to work with as I thought and as all the gurus out there will tell you. The fact is you are aiming at a moving target.
Like conventional loans, portfolio loan guidelines change frequently, in fact they change while you are in the middle of the loan process. This has happened to me twice in the last month. In both cases I got the loans very close to the closing and the owner of the bank changed her mind about something and asked for more documents. Now I am not sure if either of them will close.
This is very frustrating for the borrower, for me and for the vice president of the bank. So why is this happening?
Banks are still running scared. Of course there is always a risk of default and with smaller banks if they get one or two large defaults it has a big impact. This makes them react different then a Wall Street bank would (sometimes over react and over compensate).
Aside from default risk, banks are concerned more now about compliance. Banks are very highly regulated. They have to keep a certain amount of money in cash and have a certain mix of loans. If they start to get too heavy on a specify style of loan (like a non owner occupied residential) they will make it harder to qualify for that type of loan OR they will just stop doing them.
I had good relationships with two local banks and both said they needed to stop non owner occupied residential lending. Within the last week one of the two started lending again but has tighter guidelines.
Another issue is different banks have different appetites for loans. If there is a specific loan you are looking for that only a community bank can do you may need to call 20 or more to find one that is interested in looking at it.
I still believe portfolio lenders are an essential asset to a successful real estate investor. Fannie Mae and Freddie Mac can only take us so far. They will not do certain loans like non-warrantable condos, non conforming housing, and non habitable. Often times we can still find financing for these types of loans through banks. Not to mention the limit Fannie Mae has on the number of properties we can own.
They biggest key to portfolio lending is building a relationship with the bank through deposit accounts and build relationships with key people. If you can accomplish good enough rapport they will often bend over backwards to help get you deals closed.
We are always looking for good local banks to build relationships with to help our clients be successful. If you have any success stories please share them with us.
By Brandon Fraser