One of the niches where there has been some untapped demand for originations that lenders might want to consider carefully financing is the foreign national sector, according to Ken Engler, a branch manager in Naples, Fla., for Brentwood Mortgage Services.
Primarily existing among prospective second-home purchasers outside the United States who see pricing advantages in buying U.S. vacation properties, foreign national buyers from areas like Canada and European countries like Germany and England as well as Mexico and Australia have been showing interest in Florida, according to Engler.
A number of people are looking to invest in this area, he said.
Engler, who said he has been more than a decade of experience working with foreign national buyers, said there used to be some foreign lenders in countries like Germany and England that would finance these buyers.
But recently they have pulled back from the business and there has been a shortage of lenders stepping in to fill the gap, he said.
Given the large percentage of distressed product in the U.S. market, particularly in areas like Florida, there is concern about complications a cross-border situation can bring where a foreclosure is involved. Foreclosure properties, he said, can become mired in legalities between countries. This makes it difficult to get international investors to fund loans.
Today, Engler said, lenders that will finance a foreign national loan often tend to be local and familiar with the area the property being purchased is in. Engler said his company will sometimes close these loans and sell them or occasionally broker them, depending on the agreement with each particular counterparty.
Challenges that tend to discourage lenders and have created untapped demand in this area include problems with verification of documentation. While some countries do offer credit report verifications, Engler said other countries have to rely more upon letters of credit and information that unfortunately can be fraudulent.
A combination of notarized documents, verifications, official translations and staff fluent in different languages can help the portfolio lenders who choose to fund these loans overcome this challenge, said Engler.
There also can be exchange rate risk, although he said his company has worked with others that provide services aimed at addressing it.
Underwriting is particularly strict today in this area given the extent of high price risk seen recently in the United states, with minimum downpayments generally ranging from 30%-40% for single-family properties and another 5% more for condominiums, he said. Also each property and person tends to be individually assessed in this niche, Engler said.
As a result of such challenges, foreign national property purchases tend to be perhaps even more cash-based than transactions in regional U.S. markets that have been largely distressed usually area.
But Engler said he believes if there was a “good, reasonable” loan product with proper underwriting available to finance these transactions, a lender could tap what he characterized as a “huge” amount of demand for financing in this area.
