Brits get Disney fix as US banks lend to foreigners

[WASHINGTON] Adele and Mark Lee, who live in England with their three children, said they got approved for a US mortgage without setting foot on American soil. The vacation home they're buying near Florida's Disney World would have been out of reach if they had to pay all cash.

"It would have been a stretch," said Adele, a 35-year- old nursery school teacher, speaking from the family's home near Birmingham. "We wanted to keep some money here just to fall back on."

The Lees are using a foreign- national mortgage, a loan for overseas buyers that required a 40 per cent downpayment, to purchase the five-bedroom house later this month for US$423,000. Adele and her husband, a construction worker, plan to rent the Orlando property when they're not living in it.

Lenders are providing greater access to credit for non-US residents to finance vacation houses and investment properties. Foreign buyers, who are helping to fill a void left by Americans facing high borrowing hurdles, spent about US$35 billion on US homes using mortgages in the 12 months through March - a 46 per cent increase from a year earlier, according to the National Association of Realtors (NAR).

"The American pool of borrowers is drying up," said Anthony B Sanders, an economics professor at George Mason University in Fairfax, Virginia. "Middle-class borrowers have flatlined due to low income growth, and domestic investors are finding it less appetising because the foreclosure inventory has dried up. So who do you go to? Foreign investors."

At HSBC Holdings Plc, foreign-national mortgages, available to banking clients who deposit at least US$15,000, account for about 30 per cent of its US home-lending business, according to Peter Alongi, a mortgage sales manager. That's up from a share in the "teens" in 2008.

FBC Mortgage LLC, an Orlando-based lender, has increased mortgages to international buyers by 65 per cent this year compared with 2013. Calabasas, California-based Mega Capital Funding Inc started lending to non-residents in June after seeing rising demand from Chinese buyers.

"Instead of buying two houses in cash, they can buy four houses with loans," said Brian Na, chief executive officer of Mega Capital, which is now issuing about US$10 million of the mortgages a month. "At the same time, buyers can build a credit history in the US."

While many Americans struggle to qualify for mortgages, lenders are chasing wealthy buyers, including foreigners, whose loans typically require a 30-40 per cent downpayment compared with 20 per cent for US residents. Banks and smaller firms are offering more loan products to buyers based overseas, most of whom have paid cash for homes in the last few years.

Cash sales have been falling and in June made up the lowest share of total home purchases, at 33 per cent, since September 2008, according to CoreLogic Inc, an Irvine, California-based property-data firm.

In Florida, the state with the largest share of cash sales, smaller community banks have gotten increasingly comfortable lending to foreign buyers, said Rob Nunziata, CEO of FBC.

His firm typically offers nonresident borrowers adjustable- rate loans of as much as US$750,000 that are fixed for 3-5 years. The mortgages require at least a 30 per cent downpayment and six months of cash reserves. Borrowing costs are generally 1-2 percentage points higher than conventional loans.

The biggest challenges for lenders are verifying incomes and building credit profiles for non-US residents. Their home countries have tax systems that differ from America's and lenders have to rely on third parties, along with documentation from employers or accountants, said Mr Nunziata.

One of FBC's borrowers, Yoram Yahav, said he purchased a few houses in cash before deciding to get a US$100,000 loan for a Florida property. He's seeking to build his US credit profile because he plans to bring more foreign capital to America with other global investors.

"You may have US$2 million in your bank account in England, but if you want to borrow US$80,000 in the US you can't because of this issue with credit," said Yahav, whose Tel Aviv, Israel-based firm works with management teams in scenario planning for future events. "This way I can also increase my cash portion and have more money to put into new businesses."

While home loans were available to foreign nationals during the US housing boom, financing dried up as banks tightened credit after the crash. Applications from international homebuyers are now at about the same level they reached during the peak in about 2006, when foreigners needed just a passport and an application to get a mortgage, according to Andy Scott, president of International Mortgages.Net in Orlando, which caters to mostly British clients, including the Lees.

"The process is more convoluted," Mr Scott said. "It takes longer to get applications through. And there are a lot more checks and balances."

The company, which has worked with international buyers in the US and elsewhere for about 13 years, now uses seven lenders, up from only two after the housing bust. The firm moved from Scotland to Orlando a year ago because so many clients were purchasing there, Mr Scott said.

Buyers from the UK, Canada, China, Mexico and India accounted for 54 per cent of foreign sales in the year through March, NAR data shows. While Canada was the top source of international buyers, China accounted for the largest sales dollar volume because Chinese purchased more expensive properties on average, the Realtors report said. The top five states for international buying are Florida, California, Arizona, Texas and New York, according to the association.

The Lees have seen their vacation house only in videos taken by their Realtor. They chose it for its swimming pool and proximity to Walt Disney World, which they usually visit annually. The couple plans to rent it for the next five years and may eventually live there year-round.

"It's amazing what you can get over there for the money," Adele said. "I also like that we could do everything over the Internet. We have noticed that Americans love paperwork. But the process was fairly straightforward."

Rising prices and competition from cash-rich investors have kept many American homebuyers on the sidelines. Renters have also been blocked from homeownership by downpayment requirements and "very strict underwriting standards", said Stuart Miller, CEO of Lennar Corp, the largest US homebuilder by market value.

"The process itself has become fairly invasive," Mr Miller said last week on a call with investors. It's "almost designed to scare people away". - Bloomberg