Q: It seems as though credit unions and national banks have access to different mortgage/HELOC programs than I do.  My clients are told by their bank that they can pull money out of their existing primary residence long before the 12 month seasoning.  Credit unions and banks have also told my clients that “since you are our customer Mr. Prospect, you have access to better mortgage programs.” Can credit unions and banks really offer better rates and financing plans than most brokerage firms?    

Kristofer M. Webb

A: It is true that financial institutions have an option to portfolio loans thereby giving them the ability to originate under rules that do not exactly follow secondary market guidelines. Pricing may differ as well. Beyond this, the situation is a bit more complex than having a portfolio at their disposal…

• They must still achieve a return for these assets and therefore the pricing may be different than the secondary market dictates—but not necessarily lower. The pricing is subject to the same market forces as any asset. Remember, they could purchase loans on the secondary market and achieve a certain return—so why would they originate them and receive a much lower return? 
• After the savings and loan crisis of the late 1980’s, the Federal Accounting Standards Board (FASB) tightened up the rules for financial institutions holding mortgage assets. They must be valued at their potential sales price (marked to market) as assets in their portfolio and cannot be sold without additional financial consequences after that decision is made. Portfolio lending is not as prevalent as it was 15 years ago—and most banks want the option of selling loans and therefore originate to secondary standards.
• If a bank is substantial enough to portfolio mortgages, there is a good chance that they are also purchasing loans from brokers (they are a wholesaler) so these guidelines exist not only for the bank—but for the brokers or other lenders that sell to them.

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    Dave

Dave Hershman is the leading author for the mortgage industry with eight books and several hundred articles to his credit. He is also head of OriginationPro Mortgage School, the most advanced comprehensive curriculum in the industry, and is a top industry speaker. For more articles by Dave, free marketing materials and a schedule of classes, visit www.originationpro.com.