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The art of the portfolio home mortgage

My, my, how the world of home mortgage lending has changed since the wild and woolly days of 2006. If you’ve read or watched The Big Short, it’s a story about the secondary market for mortgage loans. Locally originated, these loans were sold in packages to bondholders all over the globe who literally had no idea what they were buying.

Fast forward a decade. For longer-term, fixed rate loans sold in the secondary market to Fannie Mae and others, we seem to document, document and then, for good measure, document some more.

Enter the old-fashioned portfolio mortgage.  Think George Bailey at the Building and Loan from It’s a Wonderful Life. Local deposits – at select local banks – are used to provide financing to local borrowers. Those local lenders – Great Midwest Bank included – can spend time researching a borrower and a property to provide a common-sense alternative for borrowers who don’t fit into the box that is the secondary market today.

Consider five typical scenarios where a portfolio mortgage can make a difference:

  1. Self-employed borrowers. Local lenders like Great Midwest Bank are well-suited to provide a customized loan option for homebuyers and homeowners who are self-employed. Secondary market financing requires extremely specific income calculations that provide little flexibility. A local bank can take the time to consider work experience, because not all self-employed borrowers should be painted with the same brush. And certain risks can be mitigated, say, with a larger down payment.
  1. Past derogatory credit. Portfolio mortgages by a local lender often mean your loan officer will “dig in” and understand what may have been at the core of a past bankruptcy, foreclosure, short sale, or something as simple as a medical collection. These major – and minor – events can get in the way of an approval for a secondary market loan.
  1. Limited credit history. Accessing credit and establishing a history can be difficult. Student loans can also prevent young borrowers from buying a home on their own. A portfolio mortgage is designed to allow willing parents to co-sign with their children, who in turn benefit from an improved credit profile and the equity build-up that comes with homeownership. Though FHA loans offer a similar option, portfolio mortgages mean far less red tape.
  1. Unique properties. Portfolio lenders like Great Midwest Bank can be a great home for financing unique properties like “non-warrantable” condominiums that are ineligible for the secondary market, high-end homes requiring jumbo loans, and investment properties with more than four units.
  1. “Blanket” mortgages. Secondary market loans only allow  the equity in one property to secure a loan. Portfolio mortgages can provide the flexibility of holding two pieces of property (often referred to as a “blanket”) to secure one loan, which in turn reduces the lender’s risk.

To learn more about mortgage options for every situation, visit

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Jon Reetz is a graduate of the UW-Madison Business School ('90) and the Kellogg School of Management at Northwestern University ('98). His 25 years of banking experience include 12 in commercial lending and the past 13 with Great Midwest Bank in Brookfield, which specializes in both owner and non-owner occupied residential mortgages.

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