Mortgage lenders see opportunity beyond the border

The cold domestic housing and mortgage markets have lenders looking for warmer possibilities, and a few are spending more efforts to finance Americans who choose to purchase primary residences and second homes south of the border.

Lehman Brothers Resort Home Lending will enter the market in a big way, offering mortgage packages this year in Mexico, Costa Rica, the Bahamas, the Dominican Republic, Panama, Canada and the United Kingdom.

The programs, featuring one-, three-, five- and 10-year adjustable-rate mortgages amortized over 30 years will be available to U.S. borrowers in Mexico, Costa Rica and the Bahamas beginning June 21, said Dan Bryant, former director of GMAC International Mortgage and now senior vice president for Lehman Brothers Resort Home Lending. Lehman plans to enter markets in Canada, the United Kingdom, Panama and the Dominican Republic in September.

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.

“There’s a lot of work ahead of us but the opportunity is very exciting,” Bryant said. “There are so many things that are different in how loans are done in Mexico and other countries, yet we plan to give our customers an excellent experience.”

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.

“Having the support of a successful U.S. bank like Wachovia really speaks to the strength of the vacation home market in Mexico,” said Joe Schneider, project administrator for Cascadas de Manzanillo, a 530-acre planned-unit development on Santiago Bay just north of Manzanillo, Mexico.

How have Americans financed second homes outside the United States? Traditionally, it was get out your line-of-credit checkbook, add any savings you could muster and then pray that the seller would “carry the paper” until you found another way to refinance the balance.

Bryant said the firm will scrutinize builders and developments in specific destinations. For example, Lehman Brothers will focus on waterfront and view communities in Mexico’s Riviera Maya, Los Cabos and Puerto Vallarta.

Underfunded projects and unscrupulous developers in popular drive-in areas such as Puerto Penasco at the northern most point of the Sea of Cortes, and at a few oceanfront buildings on the northern Baja Peninsula have prompted lenders to spend more time on analysis and research before electing to approve permanent financing.

Anaheim, California-based World Wide Lending, LLC (www.worldwidelendingllc.com), 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, while Lehman Brothers will have retail sales relationships inside each approved development.

Chris Stopp, a broker for Sacramento-based MexUs Capital, said his goal is to provide a menu of attractive loans not only second-home recreational buyers but also for retirees and sophisticated investors. “The variety of people coming to Mexico to live part-time or full-time continues to increase and their needs are different,” Stopp said. “We want to offer them an American transaction in a development they will enjoy for a long time.”

Interest rates on Mexican loans are higher — about 2 full percentage points — than those in the States because there has been no competition in the secondary mortgage markets, nor has the with Wall Street capital markets been willing to purchase the loans as securitized assets. Once the loans become more attractive and marketable to investors, interest rates will drop, according to financial analysts.

The Canadian offerings could provide an attractive option, especially with the 2010 Olympic Games in Vancouver, B.C., just around the corner. Retirees and aging baby boomers “from the states” are drawn to Canada for its wonderful skiing, health care, bargain medicine, terrific sailing and clean air, but the number of second-home buyers and older full-time residents has not been as attractive to lenders as the pool of thousands of snowbirds who head south to Mexico and Latin America.

Americans can borrow from Canadian banks and vice versa. But trying to finance Canadian property with U.S. funds becomes difficult. Location, security in the property and the ability to enforce repayment simply make the package unattractive to most U.S. lenders.

Lehman Brothers is willing to gamble that it can make cross-border lending work, and that the number of Americans buying in Canada — and elsewhere — will continue to rise.

E-mail Kelly at tomkelly.com.