Mexico’s Mortgage Market Holds Strong
Against the US Mortgage Crisis
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The United States credit crisis has sparked some concerns among borrowers seeking US dollar mortgages for their Mexican properties, an option that is gaining in popularity since it was made available several years ago. Fortunately, these fears are unfounded due to four very important factors: strict guidelines to qualify borrowers, rigorous regulation of Mexican banking practices, strong real estate values and most importantly in these troubled times, demonstrated liquidity of the lenders involved in our market. Mexican mortgage brokers continue to close a record number of loans.
 US dollar loans for the purchase or refinancing of Mexican properties have been rather conservative from their inception, just four short years ago. Strict guidelines mean that borrowers have had to contribute twenty to thirty percent for down payments, maintain low debt to income ratios of no more than 40% (the ratio of monthly debt including the new mortgage payment cannot exceed 40% of the borrowers income) and credit scores above 680. Essentially, this guarantees that the borrower has a vested interest in the property, proven income to pay their mortgage and a track record managing debt responsibly. All of this is in stark contrast to the troublesome “free-for-all” guidelines in the US where lenders granted loans to borrowers at 100% value, with high debt ratios and poor credit. The more conservative guidelines, for cross-border loans, in place from the beginning remain in effect to this day.
Previously, many mortgage brokers and potential borrowers in Mexico often grumbled that we could not compete with the fast, cheap and easy money available via home equity loans in the US. While these rules may have hurt the industry in the early years by limiting the number of loans that were written, they have protected the lenders and borrowers from the disaster that is unfolding in the United States. Because of the strict guidelines for borrowing in Mexico, from 2005 through 2007, most purchasers of second homes in Mexico continued to borrow against their equity in the US and bring that cash South of the Border to buy “all cash” instead of getting their mortgages directly against the Mexican property. Unfortunately, many of those cash buyers now find themselves with liens against their properties in the US, where their equity is falling precipitously, leaving them owing more on those primary residences than they are worth (upside down mortgage) and further wiping out much needed equity. Buyers who took advantage of the mortgages available for their Mexican properties are in a much better position.
In the mid 90´s, Mexico experienced a major upheaval in their banking system which wreaked havoc on much of the population. This mandated massive initiatives to regulate the banking industry ensuring that this would not happen again. This is important to note, since cross-border lenders tend to adhere to the banking laws and regulations of both the United States and Mexico. Since these regulations have been in effect for many years, the Mexican banking system is well poised to withstand the tribulations rocking other parts of the world right now.
 Prices for Mexican resort properties continue to hold in most of the markets – albeit at lower appreciation rates. The white hot seller’s market of the last few years has cooled to more of a buyer’s market this year. Some sellers have had to become more realistic in their asking prices. In many resort markets in Mexico over the past three years, resale prices brought triple digit returns for their sellers. Current sellers may need to be satisfied with a smaller return on their investment. However, pre-sales and new home sales – particularly when discounts are offered - remain strong. This continues to be one of the advantages of a predominantly all cash sales market combined with a responsible mortgage industry. Even though there are fewer “all cash” buyers – the mortgage industry is more than happy to step in and pick up the slack.
This brings us to the subject of liquidity and solvency of the lenders who stand in the current market and who have withstood the shakedown. The US banks funding within the Mexican market tend to be smaller, privately held banks that retain their mortgages – “portfolio lenders” as it were. These banks hold onto the mortgages they fund – rather than bundling and selling them off to the secondary market.
 There were a couple of isolated lender casualties in 2007, but those occurred at the very onset of the crisis in the US. The most notable were GMAC and IMIGroup. So a minor shakeout in 2007 has, in turn, left us with the “best of the best”. Our current lenders are the backbone of the US dollar mortgage programs in Mexico. Their programs are an important tool in maintaining home values, by offering an alternative to the all cash model in a time when most people are concerned with liquidity.
Just as responsible mortgage lending was the catalyst for the creation of the majority of wealth accrued in the United States during the latter half of the 20th Century; it will be the driving force behind the upward mobility of Mexico here and now. When looking for a mortgage program or broker, it is always wise to choose a company that is authorized by many lenders, offers a wide variety of mortgage products and has the experience and reputation for getting loans closed.
Email to a friend Terence Reilly • http://Robin-Noelle.blogspot.com
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MEXLend, Inc. is a Mexican mortgage brokerage that currently represents 20 different lenders offering more than 300 different loan options in Dollars and Pesos for buyers looking to purchase vacation or investment property throughout Mexico. In recently announced results based upon post-closing client interviews conducted by Mexico’s largest US lender, MEXLend won the #1 mark of distinction for both client satisfaction and fastest closings for the second straight cycle. MEXLend can be reached at 322-132-7991 (in Vallarta), 917-779-9061 (while in the US or Canada) or go online at www.mexlend.com.
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