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   ARTICLE   |   From Scotsman Guide Residential Edition   |   November 2017

Global Lending Is Within Your Grasp

Foreign-national lending programs make sense for community banks

Global Lending Is Within Your Grasp

In general, large U.S. retail and consumer banks, and most wholesale lenders do not offer residential mortgage loans to international borrowers. This means an enormous opportunity exists for community banks to bridge the gap and grab a slice of the global market.

Is this opportunity too good to be true, however? Do the risks and challenges outweigh the benefits? Is a foreign-national mortgage lending program right for your bank. Read on for a clear and realistic picture of what it takes as a mortgage originator to properly vet foreign national borrowers, underwrite their mortgage loans and put the world squarely in your lap.

Despite the world feeling more fractured than ever, foreign purchases of U.S. real estate are on the rise. Despite headlines about travel bans and America-centric policies, immigrants have been purchasing U.S. real estate at a record pace. In the 12 months ending this past March, international buyers spent approximately $153 billion to purchase an estimated 284,455 U.S. homes, according to data from the National Association of Realtors.

This boom in U.S. purchases by foreign buyers isn’t occurring just in Florida or California either. Boston, for example, offers world-renowned colleges and hospitals, and some foreign nationals want to purchase a home there for sons or daughters who are pursuing college degrees or completing medical internships or residencies. Others have worked in Boston themselves and fallen in love with the city, so want to be able to visit and vacation there.

Other major American cities — both on the coasts and within the heartland, offer similar amenities and experiences that make them popular with foreign nationals. Moreover, international buyers are making hefty offers because of the perceived value and prestige of U.S. properties and the higher prices and market volatility in their own countries.

Highly desirable borrowers

International borrowers are typically referred by Realtors, attorneys, financial advisers and certified public accountants (CPAs), but only if they know you can provide foreign-national loan programs. As is always the case in the mortgage industry, building strong relationships and trust are essential to getting quality referrals.

Contrary to the stereotypes many believe, foreign national borrowers are typically well-traveled, highly educated and affluent. They also can be among the most humble, gracious and appreciative customers to work with. The majority of these borrowers are extremely successful in their own countries, with many being among their country’s “1 percent.” They may even have the cash to buy a property outright, but with U.S. interest rates still at historic lows, many view a mortgage as a better financial strategy.

With that said, loans to foreign nationals typically feature terms that are desirable to lenders. It is standard for non-U.S. borrowers to make at least a 30 percent or more cash downpayment on a property. Many are good candidates for adjustable rate loans.

These borrowers also are a strong market for jumbo loans for those companies willing and able to finance them. Even a nonluxury property in Boston, for example, can have a purchase price above $750,0000, making a jumbo loan a necessity even for a borrower who can afford a 30 percent cash downpayment.

Even better, a positive loan experience can be just the beginning of a relationship that will continue to grow. Whether it’s opening an account from which to pay their new mortgage or to make furniture or other purchases for their new property, foreign nationals often become loyal, multichannel bank customers with lucrative connections for future mortgage referrals.

Similar loan processes

Although the available records differ from country to country and some extra layers of scrutiny are certainly required, the underlying approval process is essentially the same for U.S. and international loan applicants. You need to establish the identity and credit history of the borrowers, confirm the sources of their income are legitimate and ongoing, and verify the quality of the asset they are purchasing.

The internet can be a great tool to help you verify information about your international borrower, although there are exceptions. 

In addition, language is not as much of an obstacle as you might think. The onus is on the borrower to provide any necessary paperwork you and the underwriters may need, including paperwork that has been translated into English. Many of these borrowers work with CPAs or other financial advisers with the ability to generate documents in English or who have some English-speaking personnel.

Every international borrower is unique, however, so getting to know your applicant is key, especially when it comes to minimizing risks. Depending on their country of origin, culture and English proficiency, you should be prepared to fully explain the loan process and to repeat explaining the loan process. The same skills you use with other high-touch borrowers — patience, empathy and flexibility in accommodating busy schedules — will serve you well here.

You also will want to confirm that the borrower has either a U.S. Social Security number or an ITIN (Individual Tax Identification Number). To purchase U.S. real estate, a foreign national must have one or the other of these. Not every Realtor or CPA who brings you a potential international borrower will know this, so it is good to check early.

U.S. permanent residents or foreign nationals currently working in the U.S. should have Social Security numbers. For those not eligible for a Social Security number, the ITIN application process takes six to nine weeks, so your borrowers will need to have this in hand upfront.

There also will be some additional due diligence required of your bank’s financial intelligence unit. In every case, when working with an international borrower, you will need to know:

  • The country and address of the borrower’s permanent residence;
  • The type of document the borrower holds to enter the U.S. legally;
  • If the borrower is a “PEP,” or politically exposed person; and
  • If there is any readily accessible negative media about the borrower.

In addition, you must screen for money laundering, fraud or terrorism issues, including performing anti-money laundering (AML) and Office of Foreign Assets Control (OFAC) checks. If you find red flags, don’t delay in raising the issues. If you don’t feel right about a borrower’s responses to your concerns, inform that borrower promptly and honestly that you won’t be able to move forward.

Underwriting issues

When it comes time to underwrite a foreign-national mortgage, success requires bank leadership and an underwriting team that is flexible, accessible and confident.

Just like with U.S. borrowers, you will need to verify the origin of your applicants’ assets, their current employment and likelihood of continuance, their good credit and the quality of the asset being purchased. In addition, international borrowers will need to have a way to convert their income and assets into U.S. dollars.

In most cases, the internet can be a great tool to help you verify information about your international borrower, although there are exceptions, such as China, where the internet is heavily monitored and censored. Thus, when working with international buyers, there will be times when your team will need to think outside the box to find different-but-equivalent ways to satisfy requirements.

Verifying employment right before a loan closes is almost always done with a phone call for U.S. borrowers, for example. Due to time differences with international employers, however, you might need to make the verification by e-mail. In lieu of obtaining a borrower’s first pay stub, you might accept the borrower’s verified employment contract or offer letter as proof of employment.

When it comes time to close and transfer the loan to the secondary market, you may find there are some special considerations when dealing with international borrowers. If the borrower won’t be in the U.S. to attend the closing, for example, the lender may need to allow a power of attorney.

You also may need to determine if the borrower has opened a U.S. deposit account for Automated Clearing House, or ACH, and other asset costs. Lastly, you will need to ensure complete, accurate closed loan packages are in place for a clean transfer to an MBS (mortgage-backed security).

•  •  •

It may be time to expand your range as an originator — and your lenders’ definition of community — to include the global village. With advantageous loan terms and the prospect of new loyal, multichannel customers, a foreign-national mortgage lending program can help a community bank thrive. Just as rewarding, you’ll be adding an ever-growing circle of friends around the world to the enduring relationships you’ve built in your local community.


 


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