Mortgages In Mexico: What Went Wrong, and What Is Ahead

by Enrique Saldana aka Henry (February 2013)

Some History – For years, U.S. & Canadian retirees have flocked to Mexico as an alternative overseas retirement destination that is affordable, offers desirable weather and is close to their communities of origin in North America and Canada.

These attributes have made Mexico the top overseas retirement destination for older Americans and Canadians, or baby boomers, resulting in a building boom that reached its peak in 2005/06 and stretched from the beaches of Tijuana-Rosarito and Los Cabos along the Baja California Peninsula, and from Puerto Peñasco, Sonora to Mazatlán, Sinaloa. In southern Mexico, the real estate focus had been expanding from Merida and Cancún to Playa del Carmen, Tulum and the Riviera Maya.

This demand by Americans and Canadians prompted GE to open the first USD Mortgage Program in Mexico back in 2005 through the establishing of General Hipotecaria as a lending (SOFOL) entity in Mexico, and the creation of the first USD mortgage program named GE Money, which basically utilized Fannie Mae and Freddy Mac underwriting standard guidelines to fund American and Canadian residential property purchasers in Mexico.

"-Edwin Vega, mortgage director for GE, informed that the pilot program was launched in the last quarter of 2005 and that the SOFOL had reached the 20 million USD total in issued mortgages."

Other lending groups followed, though most of them were mainly originating mortgages and closing under GE Money's name at closing.

At the boom of the residential foreign investment housing market, Mexico saw two more important Mexican lending institutions also participating in the foreign investment housing market: BBVA Bancomer, through their recently acquired Laredo Bank, which later changed its name to Compass Bank-BBVA Bancomer, and later, Scotiabank Mexico.

Compass Bank-BBVA Bancomer being based in the USA was able to offer more competitive market interest rates, starting at 6.0% annual interest rates (Mexico's peso mortgage rates fluctuate between 9.99%-12.99% and above at the present time), therefore taking a bigger share of the market. Scotiabank set up a foreign investment housing program from scratch and was never able to set up a competitive program, therefore always attracting those clients who would not qualify for Compass Bank-BBVA Bancomer mortgages, or those that followed them based on name recognition such as Canadians. Scotiabank offered a non-residential mortgage program, originally named "Mortgage Por Favor," which was later changed to "Vacation Home Residential Program."

As with all American and world banks that were confronted with the financial crisis of 2008, the world financial banking crises also started affecting the Mexican Resort Sales Market, and by the end of 2008 and beginning of 2009, little by little, the USD mortgage options started to disappear, until the only options left were Compass Bank-BBVA Bancomer and Scotiabank Mexico.

However, and for different reasons, as of 2012 both programs have been shut down. We have been informed that the actual USD loans originated by Bancomer could range around the 50 mi. USD figure, if not more. Scotiabank originated approximately 20 mi. USD in mortgage loans during the 5 years their program was in place, being Canadian citizens and legal residents their biggest market. It is believed that GE Money could have originated another 50-75 mi. during their tenure. GE Money's Mexican Dream Home Foreign Investment Housing Program was closed in 2009.

Having worked as an independent mortgage broker in Mexico since 2007 and done mortgage origination for these banks, and with our 20+ years real estate and mortgage broker experience in the USA, I can say with authority that the reason for the failure of these programs was not a high number of defaulted mortgages, but faulty underwriting programs these banks had in place. Even Compass Bank-BBVA Bancomer, regardless of their USA based operation and underwriting standards, had a lot of underwriting issues.

As a point of illustration, the fact that insurance and HOA costs were not considered in the Debt-to-Income (DTI) Ratios of the prospect borrower, being that we have seen HOA costs amount up to $1,000 per month if not more on some Mexican developments, which in turn would have a negative effect in the client's monthly expenses, was a major issue on the part of Compass Bank-BBVA Bancomer, we believe. And the lack of USA and Canadian corporate and individual taxation and credit standards basic knowledge caused Scotiabank Mexico to lose a lot of qualified mortgage clients and thus created a great number of unsatisfied mortgage clients and a somewhat negative reputation among other potential clients and service providers.

At the closing of these two programs, it is believed that the combined amount of approximately 30 mi. of USD mortgage loans were left in the pipeline, not to mention the many inquiries we have been receiving with regards to mortgage financing from Americans and Canadians after the closing of those two programs.

There was an attempt by BBVA Bancomer to offer a Peso Loan (mortgage loan) at 10.9% annual interest rate under the same previous Compass Bank-BBVA Bancomer underwriting guidelines, but that has not yet materialized. Therefore, there is a need for a new USD Foreign or Non-resident Mortgage Program to be implemented at the shortest time possible in Mexico, so as to attend to this neglected market.

Consequently we have ourselves gotten into the job of procuring that funding option, which we have come about through a US Government Foreign Investment Funding Program. We are in the final stages of this program which will provide funding for Americans and Canadians at USA Treasury Notes plus a couple of points interest rate, which will make for a low annual interest rate.

The requirement by potential mortgage clients to qualify is to enter into a Mortgage Pool which will in turn would guarantee access to a USD mortgage program which will have limited available funds.

Therefore if you are interested in participating in this program, you must contact us to register into the Mortgage Pool program. Real Estate Agents may send us the name, nationality, and approximate purchase price of the clients they wish to enter into the Mortgage Pool. Developers will be approved based on the number of units available to sell. Contact us for further info.

This article provided by: Enrique (Henry) Saldana, Mexico Realty Solutions, www.mexicorealtysolutions.com; moneylendingbus@hotmail.com, Tel: (984) 147-1305 Cel: (984) 111-8743


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