I read your article on portfolio lending and I couldn’t agree with you more about Fannie Mae. In fact, it isn’t just the residential market they’re messing up, it’s the multi-family market as well. I have been a real estate investor for over 15 years. I have been an investor in multi-family, namely apartment communities. I’m writing to you because I’d like to share our horror story with Fannie Mae and how true your words are about how inflexible and unreasonable they are.

I own a 160 unit apartment complex in the Dallas, Texas area with two other business partners. After a rough start, the property is operating fine now. In fact, last year it yielded a $322,000 NOI. Mind you, we bought this property for $3.2M at a cap rate of 9%, so we’ve done well. After financing, it returned $74,000, which we put back into the property.

The horror story starts last month. You see, Fannie Mae bought our loan from our original lender. Recently, they performed what they called a “Physical Needs Assessment” inspection. It’s completely based on the opinion of the inspector they hire. Then, they generated a report of items they believe should be fixed. This report has nothing to do with the realities of running a property. Cosmetic items are listed as “immediate needs” with price tags of $10,000 and up.

Now, Fannie Mae being Fannie Mae, a.k.a. unreasonable, decides to start foreclosure BEFORE any warnings and then notify us AFTERWARDS we have 30 days to put $140,000 into a repair escrow or else we lose the property. All this because we put our money toward more important things related to running a property, rather than their list in their report. Our negotiations with them only managed to lower this amount to $75,000 but they are still inflexible.

We are now in the process of looking for an investor that will invest some capital in return for a percentage of the property. The investor will stand to make a high return in a short time if we get our re-financing approved, or they have the option of holding on to their share until we sell for a larger return. We anticipate at least a $1M profit because we are in the process of converting this property’s utilities, which will increase revenues by over $100,000 annually. However, in the meanwhile, we’re stuck with Fannie Mae messing up a good thing.

So there you have it, the horror story that is Fannie Mae. A perfectly great loan, a perfectly good property, and perfectly good investment being ruined by Fannie Mae. In our experience, we couldn’t agree with you more, Fannie Mae has done more harm than good for the investors in the real estate market.

There are a couple of lessons here for all of us. 1) Always make sure you have some cash reserves from private lenders/investors waiting in the wings on all holdings like this and 2) always develop a relationship with a portfolio lender BEFORE you need them. This craziness from Fannie happened quickly and had this investor had a portfolio lender relationship established in advance, he would have saved a great deal of heartache.

Hi Susan,

Thank you very much for the great information on portfolio loans. I can learn a lot from you. I meet lots of investors but none of them talk about portfolio loans. If you don’t mind, I have some questions.

Do I need good FICO score to qualify for this loan?
Do I need to have reserve funds?
Do I need to have 10, 20, 30 percent down?
Do they need collateral?
How long should LLC or Corporation need to be seasoned?

Thanks, Alvin

Hi Alvin, Thanks for the note.  No one talks much about portfolio loans because no one really understands them.  Except me. 

Portfolio lenders will look at the underlying collateral which is the residential or commercial property you want to finance to answer most of these questions.  Unlike conventional lenders that have to follow Fannie Mae/Freddie Mac rules, portfolio lenders have no set rules to follow so all the portfolio lenders will have varying underwriting criteria.

I’d say to be in good shape for financing a residential investment property with a portfolio lender you should have a credit score of at least 640. Your LLC does NOT have to be seasoned at all and the reserve requirement is no where near the 6 months’ PITI per financed property that conventional lenders are requiring.  Start contacting some portfolio lenders and see for yourself. If you need more help, check out my Portfolio Loan Blueprint course.— Susan

I’m dazed and confused, straighten me out here!  In your e-mails to me you keep reiterating that portfolio lenders exist out there that will allow the following:

–unlimited properties in my LLC’s.
–Blanket Mortgages.
–unlimited # of investor loans.
–immediate & unseasoned cash-out.

My broker tells me it’s just not so, that vesting title in LLC’s and Blanket Mortgages are a thing of the past. Now I have friends achieving some or all of these in states outside of Colorado.  My own reading of the rule is, you are still allowed 10 residential properties in your name. But after 4 you must put 25% down and have additional cash reserves. You can circumvent the LLC issue by utilizing a Trust Sandwich. WHATS THE REAL SCOOP!

While I think your Portfolio Loan Blueprint is a must have for survival, I can’t afford to make purchases in which the techniques are out dated—I mean the rules keep changing. Either there are Portfolio Lenders out there or not.

Maybe I should can my broker and hire you—are you still originating loans?

<<sigh>>

Here’s the real scoop… YES. Portfolio loans are out there. This guy even says that he knows people that are getting them. The problem is he’s relying on his broker. OF COURSE the broker is going to try and convince you that these things don’t exist because he CAN’T MAKE ANY MONEY ON THEM.

Brokers get paid two ways – charging you origination fees and getting yield spread premium (YSP) from the lender they sell your loan to. Portfolio lenders do NOT pay YSP to brokers.

And seriously that trust sandwich thing? Really? Isn’t the bottom line to get the loans off of your personal credit report? The very expensive and overrated trust sandwich does not accomplish that.

The bottom line is that if you want portfolio loans YOU have to do some work. You have to find them, contact them and present your deal to them. It’s a business loan and they expect you to act like a business person. That requires some knowledge on your part that the Portfolio Loan Blueprint provides.

This loan program bridges the financing between Hard Money and Conventional Financing and eliminates the 4-10 property limit.

For buy and hold investors – No Limit to number of properties:

30 Year Fixed Rate Loan – 85% of Appraised Value
Full doc
620 FICO (stated income available for 720+)
55% debt to income ratio
6 months reserves
1-4 units only

Minimum loan amount is $100,000

In some cases you can actually receive money back at closing.

Here is an example:

Purchase Price – $98,000
Appraised Value – $150,000
Cosmetic Repairs – $10,000
Loan Amount – $127,500
Est. Total Loan Cost – $11,475
Est. Cash at Closing – $18,000

This is great for a cosmetic rehab as the loan is based on current appraised value, not purchase price.

There are also loan programs available for 3-4 units, the self-employed investor and even a 75% refi for investors with equity in their properties.

This is Private Money Mortgage Financing.

For consideration, application or just more information please contact:

Kathy Gray
FCCI
817-228-4415
kathy@fccinvest.com

A portfolio loan is just a loan that is made by a lender that does NOT get sold into the secondary market i.e. Fannie Mae and Freddie Mac. These lenders are typically small banks and credit unions. Because they don’t sell the loan off to Freddie or Fannie, they don’t have to follow any of the stupid new rules such as a maximum number of 4 financed properties and no unseasoned cash out. There are portfolio lenders out there that allow an unlimited number of financed properties and unseasoned cash out.

I spoke with an investor a few days ago who has 7 financed properties with Wells Fargo and he was certain they are a portfolio lender because he sends his payment to them every month. He was surprised that they refused to refinance any of the loans because of the “max 4 financed property rule.”

Well, Wells Fargo is NOT a portfolio lender. They are a conventional lender. They sell their residential loans to Freddie Mac which means they have to follow the Freddie rules (bad). They have retained the servicing rights which is why the payment still goes to them every month but make no mistake, they will not do anything cool.

So, what kind of loans do portfolio lenders make? Lots, but the ones we are concerned with are LLC loans, blanket loans and master loan commitments. Let’s look at each one individually.

LLC Loans
Portfolio lenders will originate and close a loan in the name of your LLC. That means it doesn’t report to your personal credit report. The LLC does not have to be two years old and does not have to have any assets or cash flow. You are still personally guaranteeing the loan, it just won’t show up on your personal credit which means if you want to get a Fannie or Freddie loan you can.

The credit report is what tells the conventional lender’s underwriter how many properties you have financed so if you have 25 LLC loans but none are on your personal credit, then the underwriter at Wells will write ZERO in the box that asks for the number of financed properties you have.

Blanket Loans
A blanket loan means one loan that “wraps” many individual loans into one loan. If you have 25 LLC loans, you make 25 checks out each month, pay 25 tax bills and pay 25 insurance bills. Plus you have 25 different rates. And if they are adjustable rates, good luck trying to keep up with when they need to be refinanced.

A blanket loan will take all 25 of those loans to make one big loan requiring one payment each month at one rate. This is a cool strategy for people that are buying or refinancing in bulk since its one loan that goes through underwriting; not 25.

One thing to watch out for on these loans is the release policy which is what happens when you want to sell or refinance one property that is in the blanket. Some lenders will allow it with a fee, some won’t allow it at all and will call the whole blanket loan due and others will require a substitution of collateral. That means you’ll have to put another property of equal or greater value in the blanket to take the place of the property you’re taking out.

Master Loan Commitments
Once you establish a good relationship with a portfolio lender, you can take your business to a whole new level with a master loan commitment. Let’s say you are a rehabber that likes to keep properties long-term as rentals. You buy them with hard or private money, fix them up and then you refinance them. If you are using conventional lenders, you can only have three rentals TOTAL because that maximum 4 financed properties rule includes your primary residence.

Well, you can negotiate a deal with the portfolio lender where they agree to refinance all your FUTURE deals up to $1, $2, $3 even $5 million dollars over a 12 month period. That way you’ll never have to worry about where the refinance will come from or IF it will actually go through.

That’s just a few of the cool loans you can do with portfolio lenders. Be sure to check out Portfolio Loan Blueprint to learn more.