May not be understanding quite what you describe.
Here, added the BORDER effect to a small portrait still and it looked fine. Border can be sized by dragging the lines in the preview window while the effect screen is still open.
Or just use the sliders. No LETTERBOX was required in this example. 
In a second test, loaded a random image and letterboxed it to the desired aspect ratio, then added a border. That worked fine as well, superimposed over a background.