Loan portfolios are the major asset of banks, thrifts, and lending institutions. The value of a loan portfolio depends not only on the interest rates earned on the loans, but also on the quality or likelihood that interest and principal will be paid. A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts.

Portfolios are held directly by investors and/or managed by financial professionals. Investors should construct an investment portfolio in accordance with risk tolerance and investment objectives. Think of an investment portfolio as a pie that is divided into pieces of varying sizes representing a variety of asset classes and/or types of investments to accomplish an appropriate risk-return portfolio allocation.

For example, a conservative investor might favor a portfolio with large cap value stocks, broad-based market index funds, investment-grade bonds and a position in liquid, high-grade cash equivalents. In contrast, a risk loving investor might add some small cap growth stocks to an aggressive, large cap growth stock position, assume some high-yield bond exposure, and look for real estate, international, and alternative investment opportunities for his or her portfolio.

With a portfolio there comes investment. A portfolio investment is a hands-off or passive investment of securities in a portfolio. It is made with the expectation of earning a return on it. This expected return is directly correlated with the investment’s expected risk. Portfolio investment is distinct from direct investment, which involves taking a sizeable stake in a target company and possibly being involved with its day-to-day management. Portfolio investments can span a wide range of asset classes, stocks, government bonds, corporate bonds, Treasury bills, real estate investment trusts, exchange-traded funds, mutual funds, certificates of deposit and so on. Portfolio investments can also include options, warrants and other derivatives such as futures, and physical investments like commodities, real estate, land and timber. The composition of investments in a portfolio depends on a number of factors, among the most important being the investor’s risk tolerance, investment horizon and the amount invested. Portfolio investments for the largest institutional investors such as car loans and sovereign funds include a significant proportion of infrastructure assets like bridges and toll roads. This is because their portfolio investments need to have very long lives, so the duration of their assets and liabilities match.

Portfolio sale/purchase is the sale of a large group of related financial assets in a single transaction. A portfolio sale, sometimes called a bulk sale, is common in the secondary mortgage market. It purchases portfolios of loans from banks and credit unions that originate residential mortgages, which helps these financial institutions improve their liquidity by turning loans into cash. They can then use that cash to make more loans.

Purchases portfolios of loans, also helps lenders pool these assets in ways that will be most profitable for the lender. Before it will agree to a portfolio sale. This requirement is why lenders ask borrowers for so much information when they apply for mortgages, because to sell the loans later, they’ll have to provide that same information to the buyer.

Mortgage servicing companies also engage in portfolio sales. A financial company might sell a group of thousands of loans that it collects payments on, worth millions or even billions of dollars. The group of loans will have shared characteristics. The borrowers might all live in the same state and have similar credit scores, and the loans might all be fixed rate loans of a similar principal amount, interest rate and loan-to-value ratio. After financing professionals announces a portfolio sale, interested buyers will have a set amount of time, perhaps two weeks, to bid on the portfolio, and the sale will go to the highest bidder. Portfolio sales are also used when a financial institution enters receivership. As a portfolio lender you can make money off the fees for originating the mortgages and also seeks to make profits off the spread difference between interest-earning assets and the interest paid on deposits in their mortgage portfolio. Mortgage lenders avoid the risks of holding mortgages and try to profit from origination fees and then quickly selling off the mortgages to other financial institutions. Companies who profit off mortgage origination experience less risk and likely a more stable profit stream, while portfolio lenders have a chance to experience more upside on their portfolio, but also more risk.

Portfolio lenders, lend their own money and does not sell their loans to institutional investors. Because portfolio lenders do not have to conform to some guidelines, they will lend on more than four and even more than ten mortgages. We may also allow a cash out refinance and be flexible with many other financing options. Some portfolio lenders do not need a property to be in livable condition for me to get a loan. Investing in a portfolio lender makes it a lot easier to find mortgages. As a portfolio lender, it helps in financing clients’ rental properties and fix and flips.