Foreign National Mortgages to FHA lending - 2010 and beyond!

Prices are too good to be true but mortgages for Foreign National buyers are few and far between at the moment. As I write this, a few lenders are offering 50% to 70% LTV depending on the state and region in which they are buying. Lenders have vacated the foreign national segment of the market en masse.

Foreign real estate investors are an intrical part of the recovery of many hard hit regions in the US, including resort areas where they have historically been a highly visible demographic. The top four States ranked highest for foreign national investment are Florida, California, Arizona, and Texas, with New York, Washington and Nevada also very popular (NAR 2008 statistics), it’s no coincidence that these States cater to the vacation home markets and have been among the hardest hit by the real estate collapse. So now we sit on streets of foreclosures with property available for a steal; builders, banks, home owners, all desperate to make a deal and who is offering mortgages to foreign national buyers?

Is this because lenders believe that property values are still dropping? Actually there is quite a bit of evidence that by and large, the prices have stabilized and in many areas, are back on a slow rise. If we consider that there were only a handful of banks buying “foreign national” mortgages (many brokers but few actual lenders holding the paper), you will realize that they are still sitting on tremendous numbers of loans that they cannot liquidate. Some of these loans are not performing well and will ultimately go to foreclosure, but many are paying on time and should not be a liability. As we all know however, liquidity is key in times like this and nobody wants assets on their books that they cannot sell.

Foreign national mortgages have always been equity based with more weight being given to the property’s value as opposed to the borrowers’ strength. While the market was showing positive and controlled movement, allowing second home buyers a mortgage of up to 70-75% LTV was a relatively safe prospect for the lender. Although this remained a lucrative niche for many years, the same appetite for gluttony that brought the entire mortgage industry to its knees, eventually led to multiple mortgages per foreign national at LTV’s of up to 90% and few of which had income verification. While this niche market is, and will be again, a viable source of business, it has sent several portfolio lenders under and continues to realize mass casualties resulting in difficult, lengthy and expensive foreclosures. It should also be noted that many foreign national buyers purchase in resort areas and thus the sheer concentration of these “bad loans” geographically has further attributed to the decline in property prices.

The number of foreign buyers purchasing vacation homes has been on the rise over the past 20 years. Different regions tend to be popular with buyers from specific countries of origin, following the same trends as the areas’ tourism demographic. Although approximately half of foreign nationals purchase with cash, in recent years, as mortgages became increasingly more available, vacation home ownership has become a reality for the middle class. This segment of buyers has become an extremely measurable and vital part of the development, absorption, and now recovery of many areas. Loan programs are currently available with a handful of foreign banks, some community banks and largely on a regional basis sometime varying from town to town. Lenders that are still holding these mortgages in their portfolio are still reeling from the flow of foreclosing properties and most have limited their funding areas based on collateral damage.

Now Brokers are left scrambling to find mortgage programs for their clients. The international media that only 2 years ago was scathing in its opinion of US property investment, is beginning to soften its rhetoric. Right now, the shrewd investors and those with liquidity are coming in droves and many paying cash for condos and bank owned bargains. It will not be long before the masses are back to purchase, as no vacuum exists forever and certainly a matter of time before some sense of normalcy returns to the mortgage market. We will probably never see it quite as it was but then again, nor should we.

Although we are sitting on mass inventory in many popular resort areas through-out the Nation, domestic and foreign borrowers are desperate to buy in those that appear to have hit bottom, even with mortgages of 50% LTV. Those that are able are paying cash but imagine the absorption rate if more of those buyers that the resort areas were built for were actually able to obtain financing. Not as it was, but as it should be… based on conservative appreciation, with 30-35% deposits, and responsible underwriting!

If you are a foreign national or a realtor that works with foreign nationals, you will need to research which lenders are currently offering mortgages in the area in which you are looking. As stated, it varies so do your homework and as your Mother always said “if it seems too good to be true, it probably is” As with all lending (and life), it’s not what you know, it’s what you don’t know that kills the deal. If you have the ability to pay cash right now, then deals are abundant, if not, buckle up and have some patience, even with a high interest rate though many times the deal is worth it. After all, Florida IS on sale.