The other day, a mortgage broker named Deb Killian called me, more or less out of the blue. Ms. Killian has been in the business since 1994. She and her husband run Charter Oak Lending Group, a small firm based in Danbury, Conn., that they founded in 1996. She is a member of the board of the National Association of Mortgage Brokers. By her estimate, she has closed more than 3,500 loans during her career.

Ms. Killian was calling because she was upset about one element of the mortgage underwriting process that, in her opinion, had gotten completely out of hand. That element was the borrower’s FICO score — in other words, his or her credit score.

Essentially, she says, a person’s credit score has become the only thing that matters anymore to the banks and other institutions that underwrite mortgages. Yes, the banks all mouth pieties about how credit scores are just one of many factors that go into their underwriting decisions. But every day she receives notices from banks and other lenders showing just the opposite: as they fiddle with the terms for one or another of their loan products (something they do constantly, by the way), invariably, the credit score is the dominant — and sometimes the only — criterion mentioned. Most of the time, needless to say, the minimum credit score needed to get the mortgages has been increased.

To make matters worse, she says, clients are having a difficult time just maintaining their current credit scores — even when they have done nothing to merit a downgrade.

“This is the example that drove me over the edge,” she said.

A woman seeking a mortgage had a credit card with a $3,000 limit. She had $1,500 worth of debt on the card, which meant, in industry jargon, that she had a 50 percent debt utilization. The client had moved the balance to a different bank, and that bank immediately lowered her credit limit to the amount she had borrowed: $1,500. Without taking on an additional penny of debt, the woman’s debt utilization had suddenly jumped to 100 percent.

Which, as Ms. Killian knew only too well, the FICO algorithm frowns on. Once that information made its way to the credit bureaus, the woman’s credit score dropped. And because it had, the interest rate on the mortgage she hoped to get increased. Ms. Killian had a hundred stories like that.

Yes, she told me, she knew that underwriting standards had been way too lax during the bubble. But to her mind, the mortgage lenders had swung too far in the other direction, depriving perfectly creditworthy borrowers of the chance to get a mortgage at a reasonable rate. “If the loan criteria says you need to have a 700 credit score, and you have a 699, you don’t get the loan,” she said. “It makes me nuts.”

Was I interested, she asked me finally, in writing a column about this problem?

I most certainly was.

“Mortgage brokers,” said Craig Watts, the head of communications at FICO, with a tone of bemused exasperation. “Some of them are kind of cranky these days.”

The mortgage brokers, he went on to say, were seeing things only from their own narrow perspective — the perspective of someone who wouldn’t get a commission if their clients couldn’t get a mortgage. Thankfully, from his spot high on the mountaintop in FICO-land, Mr. Watts could give me a broader, more sophisticated take on the topic. Thank goodness for that.

A FICO score, he patiently explained, is merely a tool that lenders use to help manage their risk; criticizing it is akin to criticizing “a saw because the construction job turned out badly.” With big banks making thousands of credit decisions every day, they couldn’t possible do it without some standardized benchmark; a credit score provided that benchmark. Over the years, he added, the algorithm had gotten very good at predicting the odds of a borrower defaulting.

In fact, FICO scores are not the best predictor. The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores, according to Dave Zitting, the chief executive of Primary Residential Mortgage, a leading mortgage lender. And yet, he said, “The credit score has become the line in the sand for the banks.”

Article Source:
http://www.nytimes.com/2010/07/24/business/24nocera.html?_r=1&pagewanted=1&ref=business

Mortgage lenders are taking a harder look at prospective borrowers whose income has temporarily fallen while they are on leave, including new parents at home taking care of a baby. Even if a parent plans on returning to work within weeks, some lenders are balking at approving the loans.

“If you are not back at work, it’s a huge problem,” said Rick Cason, owner of Integrity Mortgage, a mortgage firm in Orlando, Fla. “Banks only deal in guaranteed income these days. It makes sense, but the guidelines are sometimes actually harsher than they need to be.”

Back in the slapdash days of easy credit, lenders were more likely to overlook the fact that a parent was out on maternity or paternity leave. But now that lenders have become more conservative, they are requiring new parents to jump through more hoops to prove their income will be enough to cover the mortgage.

So before some prospective parents start spending their Sundays at open houses, they should be prepared to deal with some complications. They may have to delay the purchase, deal with the banks’ bureaucracy (and requests for extra paperwork) or buy a home they can afford on one salary.

“Maternity leave or any other leave of absence often prevents a person from obtaining a mortgage,” said John Councilman, president of AMC Mortgage in Fallston, Md. “There are some who long for the days when such strict proof of income was not required.”

The lenders’ new attitude can be traced, in part, to new loan quality-control measures that went into effect earlier this year. Fannie Mae and Freddie Mac, the two quasi-governmental mortgage giants that buy the bulk of conventional loans from lenders, have not changed their rules for qualifying for a mortgage. But the system of checks and balances has been tightened, making lenders increasingly skittish.

Fannie, for instance, now requires lenders to recheck a borrower’s financial situation right before the loan closes. That includes calling an employer to verify employment. Before, lenders required only a statement in writing. Fannie’s new rules went into effect on June 1. Freddie’s similar rule took effect in January.

Both Fannie and Freddie have always required that borrowers have enough income to pay for the loan on closing day — and the lender must document that the income is likely to continue for at least three years.

But here is how some lenders are interpreting the guidelines for, say, a new mother receiving short-term disability insurance for a couple of months (new mothers may receive disability payments while on maternity leave, though the amount and length depend on state law and company policies).

Since the disability payments will not continue for three years, these lenders will not count it as qualifying income, brokers said, and will require the new mother to reapply for the mortgage once she returns to work. (The same logic may apply to an injured employee receiving worker’s compensation.)

That is what happened to Elizabeth Budde, a 33-year-old oncologist who lives in Kenmore, Wash. She nearly lost her mortgage after a loan officer learned she was home with her newborn.

With stellar credit and a solid job, Dr. Budde said she had been notified via e-mail that she was approved for a loan on June 15. But that note prompted an automatic, “out of the office” e-mail reply from Dr. Budde’s work account, which said she was out on maternity leave.

The next day, Dr. Budde received a second e-mail message from the lender, this time denying her loan approval. Since “maternity leave is classified as paid via short-term or temporary disability income,” the e-mail message said, it could not be used because it would not continue for three years.

The message also said the lender could not consider her regular, salaried income because she was not on the job. “I was really shocked,” Dr. Budde said. “At the time, they didn’t know how I was getting paid for my leave.”

The lender suggested that she get a co-signer — her husband is a graduate student, so his income was not enough to qualify — or reapply after she returned to work. But with the help of a representative from her real estate brokerage firm, Redfin, Dr. Budde was finally able to explain that she was receiving her full salary during her time off since she was using accumulated sick and vacation days. Once she provided a letter from her employer, proving her case, she was able to requalify.

“The reason we were buying the house was because we were having a baby,” said Dr. Budde, who is now living in the three-bedroom home, bought for $300,000. “And now we got punished for having a baby.”

Janis Smith, a spokeswoman for Fannie Mae, said there was nothing in its guidelines that would prohibit a borrower on maternity or paternity leave from qualifying for a mortgage, as long as the borrower had proof at the time of the closing that his or her income would be adequate upon returning to work. Letters from a doctor (with a return date) and the employer (stating the return date and salary) should be enough, she added.

Loans backed by the Federal Housing Administration follow a similar protocol. Brad German, a spokesman for Freddie, said its guidelines required underwriters to make sure the borrower’s income was stable and could be expected to continue for at least three years.

But, brokers said, many lenders are clearly reading those guidelines through an increasingly conservative lens. “Lenders are picking and choosing what part of the Freddie and Fannie guidelines they want to use and how they will interpret them because one bad loan could put a company out of business,” said Jeffrey J. Jaye, president of the Upfront Mortgage Brokers Association, a trade group for brokers who disclose their fees upfront.

For some lenders, that may mean approving a loan only after the borrower is back at work “There is no real assurance that the new mom will come back to work after she has the baby,” said Marc Savitt, president of the Mortgage Center, a brokerage in Martinsburg, W.Va. “It’s just prudent underwriting to go ahead and approve the loan, but she has to be back before closing.” (Lenders cannot ask a woman if she is pregnant, brokers said, but they can ask borrowers if they expect their employment or income situation to change.)

Indeed, if Fannie or Freddie learn that a loan does not meet its underwriting requirements, it can require the lender to repurchase the loan. Both companies are performing more quality control checks on the loans they buy or package and sell as securities. And, perhaps not surprisingly, the number of repurchase requests has risen sharply.

The companies said they required lenders to buy back a total of $3.1 billion in loans in the first quarter, up 64 percent from the same period last year.

“While repurchase requests have always happened in the past, it’s never been to the degree that is happening now,” said Kevin Iverson, president of the Reed Mortgage Corporation in Denver, acknowledging that the repurchasing is obviously driven by the high level of defaults. “The end result is lenders are running a bit scared. So when in doubt, they just reject the loan.”

Dave Varni, a real estate agent with McGuire Real Estate in San Francisco, recently learned about lenders’ nervousness about borrowers on leave while working with a couple expecting a baby within weeks. They wanted to make an offer on a home, but they needed both of their salaries to qualify. Ultimately, a mortgage broker told Mr. Varni that the expectant mother would not be considered “employed” when it was time to close the loan, which would probably disqualify her.

“It was eye-opening to me and my clients,” said Mr. Varni, who said the broker explained that lenders were skittish about lending to a new parent who might decide to stay home. “We are going to assess our situation and may have to shift our search to something where he could qualify by himself.”

Article Source:
http://www.nytimes.com/2010/07/20/your-money/mortgages/20mortgage.html?_r=1&ref=business

July 13 (Bloomberg) — Consorcio ARA SAB Chairman German Ahumada Russek says the 2009 recession caused revenue at the Mexican homebuilder to stall. As the economy improves this year, he expects total sales will increase 10 percent.

“There’s practically no inventory in Mexico City,” said Russek, chairman of the country’s third-largest homebuilder by market value, in a telephone interview from the Mexican capital two weeks ago. “People are definitely a lot more optimistic now that employment is recovering.”

Homebuilders are poised to rally as Mexican jobs rise to a record and government-subsidized mortgages boost demand, according to Alejandro Garza, a money manager at Emerging Markets Management LLC, and Ben Laidler, head of Latin America strategy at JPMorgan Chase & Co. The Habita index of six Mexican homebuilders including ARA, Urbi Desarrollos Urbanos SAB, Desarrolladora Homex SAB and Corporacion GEO SAB has fallen 14 percent this year, compared with a 0.2 percent gain for Mexico’s benchmark IPC Index.

“We are very bullish on the housing sector,” said Garza, who helps manage $12.7 billion in equities at the Arlington, Virginia-based company. “The uptick in the domestic economy should also be very favorable for the homebuilders.”

Jobs may surpass the record 14.48 million this month, Labor Minister Javier Lozano said, as Latin America’s second-biggest economy recovers from a 6.5 percent contraction in 2009, the steepest slump since the 1930s. Mexican Finance Minister Ernesto Cordero said in an interview last week that the government may increase its 4.1 percent growth forecast for this year.

Year’s Job Growth

Mexico added 513,373 jobs in the first half, reaching the central bank’s forecast of 500,000 to 600,000 new positions for all of 2010, after losing 181,271 positions last year. The data in Mexico include only jobs that guarantee pension and health benefits and require workers to contribute to the housing agency.

Economy Minister Gerardo Ruiz Mateos said in an interview last month that Mexico probably will add about 750,000 jobs this year by boosting manufacturing sales to the U.S., which buys about 80 percent of its exports.

Joblessness in Mexico declined to 5.1 percent in May after reaching 6.4 percent in August 2009, the highest since records began in 2000. In Brazil, the unemployment rate rose to 7.5 percent in May from 6.8 percent in December, the lowest since records began in 2001.

The Habita index was trading at a 19 percent discount relative to the IPC index yesterday. The two indexes on average traded at a similar valuation during the past five years.

Impatient Buyers

The MSCI Mexico/Consumer Discretionary Index, which includes Homex and Urbi, will outperform the broader IPC index this year, said JPMorgan’s Laidler. The IPC will rise 20 percent to 38,500 by year-end, he said. He doesn’t have a forecast for the Habita index of homebuilders. Urbi will gain 50 percent to 37 pesos by the end of the year, Laidler forecasts.

Urbi rose 2 percent to 24.64 pesos at 4:10 p.m. New York time in trading on the Mexican stock exchange. Homex advanced 0.5 percent to 57.91 pesos, while GEO climbed 2.4 percent to 34.20 pesos and Consorcio ARA rose 0.3 percent to 7.99 pesos.

Alma Beltran, a spokeswoman for Urbi, Mexico’s largest homebuilder by market value, didn’t respond to requests for comment. Alejandro Haiducovich, a spokesman for GEO, the country’s third-biggest homebuilder, declined to comment.

Housing Demand

Ahumada of Consorcio ARA said overwhelming demand caused his company to lose sales in recent months when agents told customers there was a six-month wait for some new developments in the capital to be completed. Demand remains slow in some parts of the country, such as tourist destinations and areas where drug-related violence is high, he said. Total sales increased 2.2 percent in 2009, according to company reports.

Sales at Homex will increase as much as 14 percent this year, following a 3 percent gain in 2009, Chief Executive Officer Gerardo de Nicolas Gutierrez said in an e-mail. The company, Mexico’s second-biggest homebuilder by market value, added 2,000 jobs in the first quarter, he said.

“The improvement in job creation and recovery has a positive impact on domestic demand and consumer confidence,” Gutierrez said. “That has a positive impact on the consumption of goods and services such as housing.”

The jobs recovery is giving the government’s housing agency, known as Infonavit, more capital to provide mortgages, Homex Chief Financial Officer Carlos Moctezuma said on a conference call last month.

Regional Jobs Growth

Mexico’s job growth still trails that of Brazil, which forecasts 2.5 million jobs this year. Mexico has added 819,953 jobs since President Felipe Calderon, who campaigned as the “president of employment,” took office in 2006. Brazil, with double the population of Mexico, created 5 million jobs in that period.

There are signs that consumer demand still lags behind the broader economic rebound. Retail sales unexpectedly fell 0.1 percent in April from a year earlier.

Mexico’s economic growth probably will be less than in Brazil, where the central bank expects a 7.3 percent expansion this year. Peru’s central bank expects growth of 6.6 percent, while Colombia’s government forecasts 3 percent.

Mexico had a housing crisis after the peso devaluation in 1994 sent interest rates surging, causing widespread defaults. There’s little risk of a bubble similar to the ones in the U.S. and U.K. in 2006 and 2007 occurring now because homebuilders and banks learned their lesson in the 1990s, said Carlos Hermosillo, an analyst at Mexico City-based brokerage Vector Casa de Bolsa SA who covers 12 homebuilders and infrastructure companies.

Housing Shortage

At the end of 2009, Mexico had a housing shortage of 8.9 million units, according to the latest report from the agency in charge of developing Mexico’s mortgage market, Sociedad Hipotecaria Federal. The figure is the broadest measure of housing needs and includes families without a residence as well as those living in homes that are overcrowded or in ill-repair.

In the U.S., the number of contracts to buy previously owned homes plunged 30 percent in May from the prior month, the biggest decline in records dating to 2001, the National Association of Realtors said July 1. A collapse in the subprime mortgage industry, as well as reduced consumer confidence, has weakened demand for real estate.

Jorge Alberto Moreno, a Mexico City resident who was hired last year by Samsung Electronics Co., said the economic rebound is providing him with security. He plans to purchase a new home with his wife and son in the next year.

“We’re leaving the crisis behind and the situation is a bit more stable,” said Moreno, 32, who works in Samsung’s marketing department. “This gives us more confidence to make these kinds of decisions that you wouldn’t make otherwise.”

–With assistance from Thomas Black in Monterrey, Iuri Dantas in Brasilia, John Quigley in Lima and Helen Murphy in Bogota. Editors: Brendan Walsh, Brenda Batten

To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net; Jonathan J. Levin in Mexico City at Jlevin20@bloomberg.net

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

Article Source:
http://www.businessweek.com/news/2010-07-13/mexico-housing-recovery-signals-gain-for-homebuilders.html

The PV Yankess after winning the 9-11 year old championship in the Puerto Vallarta Little league.

The PV Yankees defeated the Mexlend Martillos 9-8 in as thrilling a game as the Puerto Vallarta Little League has seen to win the 9-11 year old championship. The teams came into the game with a two week layoff due to the All Star games in Puerto Vallarta and the following week in Guadalajara and the Yankees came into the game ahead in the best 2 of 3 series ahead 1-0 with a thumping of the Martillos 12-5 three weeks earlier.

Pitching on this age level is always the most important part of the game and the pitchers need to eliminate walks as much as possible and attempt to get the batters put the ball in play. The Yankees did put the ball in play and scored three times in the top of the 1st inning but the Martillos utilized a two run triple to close to 3-2 after the opening inning.

Let me say at this time the softball field stands were completely full with parents, family and friends of the players and the growth of popularity of the Little League in Puerto Vallarta. And this full crowd made more noise than major league stadiums I have been in with more than 20,000 people in the stands.

The Yankees again added three runs in the top of the 2nd due to a three run homer. Mexlend although smaller have always had a lot of spunk and fight and can never be counted out. In the bottom of the 2nd they scored four runs on a homer and a double with the bases loaded and after two innings it was 6-6. Mexlend starting pitcher Angel Vasquez pitched a perfect 3rd inning and the Martillos scored two runs on three hits to take an 8-6 lead. The Yankees starting pitcher Cristian Gastillo was ejected in the inning for hitting his third batter (all unintentional).

The Mexlend Martillos were sub champions and worthy opponents, losing a thrilling final game.

Mexlend changed pitchers and Cesar Avena took the mound and all the substitutes also entered the game for the Martillos in the top of the 4th inning. Avena allowed two runs and was in a jam with two on and only one out, but struck out the next two batters and going into the bottom of the 4th it was tied 8-8 as the crowd was in a frenzy.

After a leadoff double, Mexlend was unable to bring the go ahead run in and the two teams went to the 5th inning still tied 8-8. Most of the five substitutes are not as good as the starters at the plate but putting them in for three innings gives them the chance to improve in game situations.

The top of the 5th was as crazy an inning as we have seen all year. The Yankees leadoff hitter hit a blast and could have circled the bases twice before the ball was retrieved and the team was celebrating the home run, but the ball was thrown to the catcher and he stepped on home plate and the home run was waved off as the hitter missed touching home plate. Avena struck out the next batter but a single, a stolen base and another single drove in the only run scored in the 5th. The final out of the inning was a diving tag made by the catcher on a passed ball as the Yankees took a 9-8 lead into the bottom of the 5th which was three up and three down and possibly just three outs left in the Martillos season.

Avena again did his job on the mound and pitched a perfect 6th inning and it came down to the bottom of the 6th with Mexlend batting and trailing 9-8. A leadoff single had everyone on their feet and then a sharp ground ball was snagged by the 2nd baseman and he made a perfect throw for a force out. Another ground ball to third and another close play at first but the runner was out as there was a man on second with two outs and just one out left. The batter struck out and the Yankees won 9-8 and earned the championship in a well played and thrilling game and then the celebration began. The game took three hours to play.

Congratulations to the PV Yankees for their championship season and also to the Mexlend Martillos who were a group of young kids at the start of the pre season, many never had played baseball before. Congratulating the kids from each team for a game and season well played, when I arrived to the Martillos dugout almost every youngster had tears in their eyes. It was not because of bad sportsmanship, but the sadness of losing something that was so close and learning that losing was not the end of the world.

Also they will be losing their coach Osiris Garcia who tutored them from kids just six months ago could hardly hit, catch or throw and now sub champions of the league. They will have new coaches and Osiris will pick up a different team to coach and hopefully tutor them as well as he did the Martillos.

The season began on January 12th with opening day festivities and ended exactly five months later. We had a new league president named in February after the president resigned and Blanca Cisneros did a superb job. Little does she know that the totally voluntary job has a five year term.

The season has come to an end but not a close. This coming Saturday the teams will play a summer season. There will be some player changes and coaching changes but the kids almost demanded that hey continue to play. Some will leave for summer vacations, but we have 50+ kids now on the waiting list, so players will not be a problem.

Prior to the championship game an All Star team from Mascota, Jalisco challenged the PV Delfines 11-12 year old All Star team and the two played a nine inning game.

This is the same All Star team that traveled to Guadalajara for the state championship last weekend. This writer was in the hospital and unable to accompany the team but received regular updates.

The 11-12 year old All Stars that played in the Stae of Jalisco District Championships in Guadalajara June 4th – 6th. They didn’t win but played two extremely competitive games and will be a force to be reckoned with in the near future.

In Guadalajara from June 4th -June 6th:

The Delfines played three games and if they won two, they would have played a fourth game on Sunday to determine if they would advance to the Regionals.

With an unlucky draw the first team the faced was the mighty Guadalajara squad and the Delfines lost 17-1, stopped in the 4th inning due to the mercy rule. Their second game was against Ocotlan and the Delfines led 2-1 after four innings but lost a heartbreaker 4-2.

Again the coaches learned that the pitching staff in Little League has to be at least seven pitchers deep. This is the case for All Star tournaments where four games can be played in three days and they limit pitchers to a maximum number of pitches. The final game was against Alfarera and again then Delfines played well and lost a close 6-3 game. The Guadalajara trip was a success regardless of the lack of a victory. Puerto Vallarta are the new kids on the block and we played well but need to learn and train to become more competitive.

Back to the Mascota – PV Delfines All Star challenge. The Mascota starting pitcher’s name was Nicos and he was clearly the best player on the team. Both teams scored a run in both the first and second innings and the score was tied 2-2. Mascota, behind a Nicos two run homer opened a 4-2 lead and after holding the Delfines scoreless Mascota added three more runs in the top of the 4th to open a 7-2 lead.

Both the PV Delfines and the Mascota all stars in a photo after they two played an exciting nine inning game Saturday morning. Mascota who wants to join our league won and they have some quality players up in the mountains.

Oswaldo Cazares who came on to pitch blasted a long three run home run in the bottom of the 4th to close the Mascota lead to 7-5. Mascota added one more run on a homer by Nicos, his second on a line drive just inside the 3rd baseline that traveled to the fence. After 4 ½ innings it was 8-5 Mascota and the two teams played 4 ½ more innings of completely scoreless ball. Mascota won the nine inning game 8-5.

Cazares was the MVP for the PV Delfines. He hit the big home run and added another two hits and pitched three innings, retiring nine of ten batters and seven by strikeout. Co-MVP was Josue Lopez who pitched the final three innings and didn’t allow a run. Mascota has asked to join the Puerto Vallarta Little League as baseball fever for the youngsters is growing rapidly.

After the game and prior to the Yankees-Martillos championship games was a big pot luck made by the moms of all the Puerto Vallarta players. There was enough to feed 200 people so nobody was left out.

Your support provides endless benefits for Banderas Bay area kids, who will develop the qualities of citizenship, discipline, teamwork and physical well-being by participating in Puerto Vallarta Little League Baseball. To learn how you can help, send an email to Bob Cohen at bob(at)banderasnews.com. For more information about Puerto Vallarta Little League Baseball, click HERE.

Q: As a Seller, my realtor is pressuring me to offer owner financing. Why should I do this if there are mortgages available? Stan H., Seattle, WA

A: In recognition of a soft market, some realtors are recommending owner financing as an option for a quicker sale. While it makes sense for some sellers, there are pros and cons.

The most important question you need to ask yourself is: Do you need or want the full amount from the sale as quickly as possible? If the answer is “yes” then owner financing is not an avenue you need to embrace. Typically owner financing requires a hefty down payment on the part of the buyer and a short amortization period of 1 to 5 Years. This short amortization period represents a much higher monthly payment for the buyer – often 3or 4 times more than that of a 30 Year Loan. Frequently, buyers – even with the best of intentions when venturing into such an agreement – find themselves unable to continue making such large payments at some point during the course of the loan. Consequently, it is imperative when offering owner financing, that a seller perform a rigid cash flow and credit analysis to determine if the buyer (borrowers) can, in fact, afford the loan.

With a traditionally mortgaged client, you will have the entire sales amount in your pocket at the closing. There are a myriad of ways to structure owner financing, but it will still leave you unpaid for the full amount of the sale, until which point the final payment is made. Of course, the realtor will still receive full commission.

Another drawback for some is that this locks you into a relationship with your buyer for a number of years. If there is a non performance issue or loan default, do you have the stamina or time to pursue this legal matter in Mexico?

Also, if your buyer cannot obtain institutional financing, you might have to ask yourself “why?” If they cannot qualify for a traditional mortgage, is this someone who you want to enter into a financial relationship? Mortgages require the vetting of the buyer’s credit history and their ability to make payments. Do you have the tools to vet a potential buyer to the point that you have a comfort level?

Now, there are a some buyers who fall between the cracks and will not qualify for a traditional mortgage. For example: Canadian citizens that earn their livings outside of Canada. This is because, unlike the United States, Canadian tax laws do not require their citizens to file if they are working in a foreign country. We ran into this when we had a Canadian client who worked in the oil industry in the Middle East. He had an excellent credit history and earned more than enough to qualify to make payments and in addition had vast reserves of liquid assets. However he had not filed taxes in Canada, because he was not required to. The problem is that traditional Cross Border Lenders require tax returns as proof of income, therefore he did not qualify for these programs. We were very disappointed in not being able to obtain a mortgage in this case for an incredibly qualified client and friend. The seller offered owner financing and the deal went forward.

We would be remiss if we did not also include the upside of owner financing. First and foremost, is that you have sold your property. Secondly, you dictate the terms and most likely are charging interest on the payments, and therefore will stand to earn more than the sales price when compounding the interest.

In the years before mortgages were available for Mexican properties, owner financing was more the norm. These days, with a very few exceptions, why put yourself in this position unless you are solvent enough to take the risk for the small additional income?

Q: What is a Good Faith Estimate and what should be included? Patty M, Los Angeles, CA

A: All reputable mortgage brokers should be willing to give their clients a Good Faith Estimate or GFE outlining the costs associated with financing a real estate transaction. In the US, Truth In Lending Laws mandate a GFE be presented to and signed by a borrower seeking financing. Most banks lending in Mexico also require their approved brokers to follow these guidelines and supply clients with GFE’s.

Good Faith Estimates on cross border loans should provide an itemized list of all expenses pertinent to BOTH the Real Estate PURCHASE and THE LOAN. This is important to emphasize because closing costs, in general, are higher in Mexico than what most borrowers are accustomed to in the US and Canada. Historically, local custom has dictated the majority of the closing costs fall on the buyer. The consolation being that when and if you sell your property you then pass these costs on to your buyer.

If your Realtor or Developer gives you an estimate of costs prior to your getting loan approval – your Mortgage Broker’s estimate will reflect those costs PLUS the additional costs associated with obtaining a loan.

Costs for the property side of the transaction will include the cost of the Notario, the cost of obtaining an SRE permit, property transfer and acquisition taxes, trust application fees, first year trust fees, tax appraisal fees and all registration fees. These fees are largely non-negotiable (read: fixed) and formulas for determining their totals are issued on a Mexican federal and state level. They can vary widely between the Mexican States. For example, closing costs in Nayarit, Vallarta’s neighbor to the north, are different than closing costs here in Jalisco.

Costs included in the Good Faith Estimate associated with the loan will be broker fees, bank fees, processing fees, commercial valuation fees, appraisal fees, interim interest, title insurance – if applicable and insurance premiums. These will vary from broker to broker and from bank to bank.

What many borrowers do not realize is that there are currently as many as 15 different Banks Lending in Mexico and more entering the market as I write this column. Some are Mexican entities and others are based in either the US or Canada acting in partnership with Mexican Banks. Each of these Lenders has distinctly different loan programs and fees can vary considerably. However, generally speaking, banks with higher closing costs typically offer lower interest rates and those with lower closing costs offer higher interest rates. In addition, borrowers with excellent credit and easily documented income will usually see better terms over all – than those who don’t, won’t. These aspects of the Mortgage Industry in Mexico closely mirror those of the US or Canada.

Most importantly, remember that a GFE is an ESTIMATE given in good faith. Your mortgage broker should come within a reasonable margin of the actual, final costs. However, it is not an exact science and there are unforeseen variables which can change the numbers as you approach your closing; such as currency fluctuations, changes in tax laws which occur PRIOR to funding but AFTER loan approval and depending on the final, appraised value of the property.

Q. “How secure is my property if I purchase in Mexico?” Chris M. – San Francisco, CA.

A. Very secure. In the “restricted zones” along the coast or near the border, foreign buyers are required to place the property in a Trust (Fiedecomiso) with a Mexican bank. The buyer is the beneficiary of the Trust and it is saleable, will-able and automatically renewable after 50 years. As a buyer you have full rights of ownership, use and enjoyment. In effect, the Trust allows the transaction to act as “real property” for all intents and purposes. This is an excellent mode of protection as the Bank Trust (Fiedecomiso) places certain fiduciary obligations in the hands of a Licensed, Chartered Mexican Financial Institution. Financing adds an additional layer of protection deriving from the very thorough due diligence the Lender employs to investigate the deed of the property. Banks tend to be rather conservative and would not offer mortgages on Mexican Property without a very high confidence level in doing so. With financing, you not only have a Mexican bank looking out for you, you also have a US bank protecting your interests.

The Mexican economy has also been stable for many years and in fact, they are one of the top 10 emerging economies in the world. The Mexican people are rightfully proud of their emergence onto the world scene and you can be assured that there are no foreseeable changes in the future. The advent of NAFTA in 1993 has been the driving force behind this economic miracle by opening Mexico up to foreign investment and stabilizing their currency.

Mexico’s resort areas rank among the finest in the world and the Mexican government is committing vast resources into the infrastructure of these areas to ensure that they continue to attract investment.

Proximity: Getting to Mexico is very easy for both from the United States and Canada. Most major cities offer non-stop flights directly to major tourist areas and there are more being added every year.

The “Boomer” generation: The enormous amount of accumulated wealth by the boomer generation has never been matched. Today’s U.S. citizens and Canadians are much more adventurous than their predecessors. Instead of settling for Florida many are investing their real estate dollars in Mexico. Over 15,000 Americans and Canadians turn 55 each day. Last year approximately 400,000 foreigners looked south to Mexico as an option for a place to retire or for a second home.

Few people can resist the magic of Mexico and now that financing is available, it is much more attainable for all.

Q: “What is the difference between a Mortgage Broker and a Mortgage Banker?” James G., Springdale, AR.

A: The Primary Mortgage Market is made up of a variety of players involved in the lending of money to the actual consumer. These players include the Borrower, Mortgage Broker, Mortgage Banker and the Banks who do the Lending.

The Borrower is just that – the person or entity seeking funds for either a purchase or re-finance.

A Mortgage Broker assists the Borrower in obtaining a mortgage. Mortgage Brokers typically work with multiple lenders, offering a variety of mortgage products. In general the more Banks a Broker represents, the better their success rate in obtaining financing for their customers. Mortgage Brokers generally receive a commission from the borrower, lender or a combination of the two in exchange for doing the majority of the “leg work” involved in packaging loan files, compiling and analyzing the extensive loan documentation and channeling the consumer into the loan program which works best for them. However, in Cross Border Lending within Mexico – most Banks do not pay brokers direct and the entire commission must be charged to the client as part of their closing costs. This may change in the future as consumer lending becomes more competitive in Mexico and some of the current borrower costs can be absorbed by the Banks.

Mortgage Bankers approve and close loans using their own funds – often using “warehouse lines of credit” from other sources. Upon closing, Mortgage Bankers typically sell these mortgages to outside investors. Loans are generally underwritten according to the specific guidelines of the investor purchasing the loan. This is why lending guidelines can often seem overly strict or rigid. If the Mortgage Banker or Broker doesn’t get every detail correct, according to these specific guidelines – the loan could end up ineligible for sale on the secondary market.

Banks do the actual lending of money to make mortgage loans. Banks have a choice of either selling the loan on the secondary market or maintaining the loan for their “in house” portfolio. Banks that keep loans “in house” are known as portfolio lenders. These loans are not automatically packaged for re-sale on the secondary market and therefore may not have to conform to investor guidelines.

Now this is where things get a little bit complicated. In Mexico – just as in the US, Canada and elsewhere – a borrower can obtain a mortgage by working with a Mortgage Broker, Mortgage Banker or Bank. However, some Mortgage Bankers and Banks have Retail Divisions and some only work Wholesale. A Bank with a Retail Division has Loan Officers on site that will take a client’s application and work with them on compiling the required documentation. Banks that work strictly wholesale will refer the client to an approved Mortgage Broker for these services. It is up to the borrower to know which entity they are working with and if they are being introduced to enough of a variety of loan products to effectively make a decision. Knowing the difference between Mortgage Brokers, Mortgage Bankers and Banks – can mean the difference between having options and getting the best deal or getting stuck with a loan program with unattractive terms.

In the very early stages of Cross Border Lending, just a few years ago – there wasn’t much of a Secondary Mortgage Market in Mexico and most of the loans written were held in the Banks Portfolios. However, at this historic time, there is tremendous interest in the Mexican Housing and Mortgage Industry by both National and Foreign Investors. Thusly, the Secondary Mortgage Market in this country is beginning percolate. The anticipated growth and expansion within this market will allow the emergence of additional loan products, competitive interest rates and higher rates of home ownership across the board – a very good thing indeed!

Q: “How can I determine what loan for Mexico that I can afford?” Christine H., Denver, CO.
A: Determining how much of a loan you can handle is relatively easy. You can go online to our website and fill out the pre-qualification form; we’ll work the numbers and provide you with an estimate of costs and what your current situation will allow. Or you can call direct and we can do the math for you – real time. Most brokers offer similar services.

But if you want to tinker with some numbers on your own, loan affordability is based on a simple equation known in our industry as DTI, or Debt to Income Ratio. This is merely the percentage of monthly debt that you carry in relation to your monthly income. In other words, add up all of your monthly credit card payments, car payments, rent or mortgage payments, alimony, child support or whatever else you have that will show up on a credit report and divide that into your gross income per month. Only use the fixed expenses, don’t bother with grocery, electric bills and such. Following the above steps will give you what’s known as a Front End DTI or – not factoring in the new, proposed purchase.

For Example:
1st Mortgage: $1,500 (Per Month)
Credit Cards: 800
Car Payment: 600

Monthly Debt: $2,900
Income: $9,000

$2,900 Divided By $9,000 = 32.222 The Front End DTI is roughly 32%

Banks are more concerned, however, with Back End DTI’s. In order to calculate this ratio, simply factor in the monthly payment of the Proposed Purchase.

For Example:
1st Mortgage: $1,500 (Per Month)
Credit Cards: 800
Car Payment: 600
Proposed
2nd Mortgage 700

Adjusted Monthly Debt: $3,600
Income: $9,000

$3,600 Divided By $9,000 = 40.0 The Back End DTI is 40%

The above scenario would easily meet the DTI requirements for all of our Loan Programs.

It helps to have a mortgage broker go through this with you using your credit reports as you may not have a true indication of these numbers. Also, a mortgage broker can sometimes identify sources of income that you may not have remembered, or find payments on your credit report that can be subtracted.

While there are lenders for Mexican properties that will allow your debt to income percentage to be as high as 50%, most of them prefer that this figure be at or below 40% to 45% – with the addition of the new mortgage payment.

Cross border lenders are very conservative, which bodes well for your real estate investment. Irresponsible and aggressive lending practices just don’t exist in legitimate mortgage avenues in Mexico. This means an extremely low default ratio across the board which will only help to bolster current market values and indeed allow them to continue climbing. This is in direct opposition to what is currently happening in the U.S. market.

Prequalification is the first important step in embarking on the loan process. Know what you can afford and always borrow within your means.

From ShelterOffshore.com comes an article looking at the top four places to buy property in Mexico (and MEXLend Mortgages can handle loans in all of them!).

Of course, our favorite is Puerto Vallarta.