Real Estate News
Small lenders fill niche for Mexican mortgages
Programs requiring 20-30% down lure investors, retirees
By Tom Kelly
10/22/2008 8:00:00 AM
The residential mortgage meltdown in the United States not only has devalued investors' significant assets but it has stymied their ability to create and explore potential future business.
New York-based Lehman Brothers Resort Home Lending abruptly ended its four-month entry into the Mexican and Costa Rican mortgage markets even as many destinations in those two countries continue to appreciate and draw second-home, retirement and investment buyers.
"While there is a lot of potential there, the international side wasn't even a blip on Lehman's radar," one analyst said. "When you compare it to the overall picture the company had to consider, international mortgages were nothing."
According to Bloomberg News, Lehman recently suffered its largest loss in the company's 158-year history. In the third quarter ending Aug. 31, the investment bank reportedly wrote down $5.6 billion in residential and commercial real estate and disclosed a preliminary net loss of $3.9 billion for the quarter. Two weeks later, Lehman announced it would file for bankruptcy protection.
Lehman's latest troubles were publicized on Sept. 11, exactly seven years after the terrorist attacks stung the world and nearly destroyed the company's headquarters across the street from New York's World Trade Center. Lehman's Resort Home Lending group had planned to start doing business in Canada, the United Kingdom, Panama and the Dominican Republic this month. Instead, it closed up shop, and the parent company's challenges continue to make international headlines.
GMAC was the first national lender to introduce a 30-year, fixed-rate product south of the border but pulled out of Mexico late last summer when the U.S. mortgage market meltdown began to influence international partner companies. Lehman Brothers purchased some of GMAC's Mexico back-office operation late last year.
While huge United States conglomerates refuse to gamble the time and energy to learn the complexities of Mexican mortgages in a down domestic market, a few smaller niche lenders are seeing the international space as prime territory. All are attempting to offer U.S. customers the same look, feel and closing as the loans they have in the States.
"We believe there is an enormous potential in the Mexican market, not only in recreational second homes but also in retirement residences for aging boomers," said Matthew Miller, president and CEO of Chicago-based ConfiCasa Mortgage International. "We have a supply of funds that has nothing to do with the U.S. economy or with U.S. mortgages, and we plan to be south of the border for a long time."
ConfiCasa has an operation in Los Cabos and recently set up an office in Puerto Vallarta. The company enlists a variety of third-party title insurance companies and escrow companies. It is targeting North American baby boomers, including large groups from Vancouver, Calgary, Montreal and Toronto who have been drawn by ConfiCasa's 20 percent down-payment programs.
ConfiCasa offers construction loan programs for single-family homes and condominiums, 80 percent loan-to-value ratios, and stated-income loans with a 30 percent down payment. Its most popular loan programs are five- and seven-year adjustable-rate mortgages.
Anaheim, Calif.-based World Wide Lending LLC, which plans 20 locations in Mexico, has begun to list its approved developments on its Web site. It plans to utilize a broker network throughout Mexico.
Doug Hallstrom, a broker for Sacramento, Calif.-based MexUs Capital, a group that has plans to broker some loans to World Wide, said his company has begun informational seminars in the U.S. hoping to interest not only second-home recreational buyers but also retirees and sophisticated investors.
Wachovia Bank also has launched a program that enables the bank to purchase vacation-home loans made in Mexico. The vacation-home origination process is designed to look and feel like the loan origination practices in the United States, according to Wachovia.
The lending community is not the only group to have slowed its efforts south of the border. Some developers in Mexico have been relying solely on consumer down payments to build their projects. Those projects have been put on hold until the U.S. market rebounds. The developments that are succeeding are those that have other money to build and promote.
"In a down market, you either double-down or get out," said Dan Bryant, a veteran lender and analyst of the Mexican second-home market. "Fortunes can be made in a down market, and now is the time to shine. The developers who step up and find other sources of money to complete well-planned projects will get the buyers -- now and when the market comes back."
Underfunded projects and unscrupulous developers in popular drive-in areas like Puerto Penasco at the northernmost point of the Sea of Cortes and at a few oceanfront buildings on the northern Baja Peninsula have lenders spending more time on analysis and research before electing to approve permanent financing.
To get even more valuable advice from Tom, visit his Second Home Center.