Foreign National Mortgages to FHA lending - 2010 and beyond!

Well the tax credit has ended but we seem to be ramping up and getting busier by the day, we have recently added HomePath mortgages to our menu of programs. If you haven't heard of these, please take a minute to go to www.homepath.com and read what you are missing. Whether you are a US citizen  or a Non Permanent Resident looking for a primary, second, or investment home, this may be the most competitive program that we've seen in quite a while. You can finance up to 97% on a primary home with NO mortgage Insurance and NO appraisal! It's not often that exciting news comes along in the mortgage industry lately!

That isn't all that is keeping us busy though! We have added some very comprehensive information on Foreign National programs to our website page www.acmhomeloans.com/foreignnational

There are brokers that claim to have great programs but we often hear that the deal never closes.  We have always remained on the more conservative side, believing that we are only as good as the last loan that we close and if we build ourselves up to our clients and don't deliver... well they tend not to come back and they most certainly don't send referrals, which are our lifeline!

We have listed our tried and true programs with as much detail as possible to assist you and while we may not be able to help every borrower, this comprehensive explanation of the requirements will certainly help educate everyone on what is expected. We are committed to keeping you updated on any new programs and indeed any changes that are happening in the industry. Please call or email us if we can be of assistance.

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.

Welcome to ACM's new blog. We will be discussing mortgage industry information as it relates to us specifically in Central Florida. If you have questions, statements, comments, etc as it relates to the mortgage industry, or current state of the financial market, Please feel free to participate and add your thoughts.

We will begin the discussion on Non Warrantable condominium projects in Central Florida and what is to come of the 10s of thousands of units that are available, either held by the developer, investors, or banks.

First, what are non warrantable condos?

Non Warrantable Condos are not eligible to be sold to Fannie Mae or Freddie Mac because they DO NOT fit into one of the following three classes:

CLASS I

1. Developers control of the homeowners association has been turned over to the condo owners
2. Project is not subject to additional phasing or add-ons which have not yet been completed
3. All common elements and amenities must be fully installed, completed and in operation
4. 70% of all units in the entire development must have been sold and or legally obligated to close
5. 70% of all units in the entire development must have been sold to owner occupants

CLASS II

1. Recent or current condominium conversions (from apartments)
2. Homeowners association has been controlled by the unit owners (other than the developer) for less than two years
3. Project is not subject to phasing or add-ons which have not yet been completed
4. All common elements and amenities are fully installed, completed and in operation
5. 70% of the units in the entire development must have been sold and/or legally obligated to close
6. 70% of the units in the entire development must have been sold to owner occupants
7. No more than 15% of the current unit owners are more than one month delinquent in payment of homeowners dues or assessments

CLASS III

1. Homeowners Association has been controlled by unit owners (other than developer) for at least one year
2. Project is not subject to phasing or add-ons
3. All common amenities are fully installed, completed, and in operation
4. 90% of the units have been sold (owner-occupancy of at least 60%)

Lenders determine eligibility by requiring the management company to complete a questionnaire.

There are countless projects in Central Florida that are non warrantable for one or several of the above listed reasons. Given the current climate in lending, available mortgages are few and far between. Although we can finance units up to 75% loan to value, there are not nearly enough loans to pull all of these units out of the black hole.

So what happens now?

Many developers are trying to hold on until the market stabilizes, some have converted to apartments or rentals, some are liquidating at great discounts, some have had their projects foreclosed by the bank.

Either way, there is great opportunity for a strong borrower (good credit, 25-30% deposit, stable income, etc) to purchase one as a primary or second home, at a steeply discounted price.

Investors have descended upon this market like vultures, purchasing whole developments from banks and ailing developers. As the units are gobbled up, we sit and think that there are so many more still to go... don't wait too long though because the pace that these condos are being purchased (in bulk and one by one) is increasing rapidly, and so of course will the price!