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Think outside the box: Originating non-mortgage business loans

Jan 30, 2006

Foreign nationals: The oldest emerging market Gil Zapataniche marketing, marketing to foreign nationals, globalization Fortune 500 companies in the larger economies in North America, Europe and Japan acknowledge that one of the most critical challenges they face today is globalization. For some time now I have been writing about emerging markets within the United States and how they relate to the mortgage industry. How does globalization affect our industry and how can we take advantage of this? Understanding the world Before you can capture this opportunity, you have to understand that the capital and financial markets in developing countries are remarkably unsophisticated. Apart from a few exchanges and capital sources, there aren't many reliable sources of credit to access capital. The financial institutions can offer high returns, but they aren't stable. With the exception of the larger economies such as Europe and Japan, the rest of the world is not providing financial stability to their consumers. The United States is far from perfect, but it's one of the best systems in the world. We are lucky, but the rest of the world is not. The political, social and economic instability in many nations has built America since its inception. I have always said that the United States is a nation of immigrants that undergoes an assimilation process - from the British, to the Italians, to the Irish, to the Africans, to the Hispanics. The only difference today is that the assimilation process is much more rapid and the mass of assimilators exceeds the new immigrants and foreigners trying to set foot in this country. Aside from the immigrants trying to get a foothold, there is another group entering the marketplace - foreign nationals. The United States has attracted foreign nationals from all over the world for various reasons including vacationing, business opportunities, globalization, immigration ties and a potential place to live. In addition, with globalization on the minds of many multinational companies, there is a trend towards relocating employees and executives to other countries. For instance, the ties between Latin America and the United States has caused a reciprocal movement of Americans and Latin Americans being transferred to create new markets between these two regions. Globalization is providing an immense opportunity in the mortgage business, yet only a few companies go after this market aggressively. Foreign nationals and mortgages A foreign national borrower is a citizen of another country who may visit the United States periodically, or live here for an extended period of time, but is not a U.S. citizen, permanent resident alien or non-permanent resident alien. There are only a few lenders that have designed mortgage products to cater to this market. Some of these institutions include Chase Manhattan Mortgage, National Bank of Arizona and Washington Mutual. But, keep your eyes open because this is a non-conforming product, and there are many non-conforming lenders that will launch a foreign national product. Documentation When dealing with foreign nationals, you must become familiar with the world of foreign documentation. I remember reading an article once that said mortgage brokers are like politicians, entrepreneurs, salespeople, attorneys and a public relations person all rolled into one. I find a lot of truth in this. Dealing with foreign nationals and foreign documentation is almost like being a diplomat for the United Nations or a U.S. ambassador. First, it all depends on the country you are dealing with, but most lenders who are working with foreign nationals require all documents to be translated into English and U.S. dollars by a disinterested party or a certified translator. If these documents are provided in the United States, they will be accepted by the lender. Thus, if these documents are coming from a foreign country, most lenders will require that these documents be notarized by the U.S. embassy in the respective country. I once dealt with a buyer who was in Colombia, but the closest U.S. embassy was in Bogotá and my buyer was about three hours away. In another case, I had an investor for whom I had refinanced 10 properties in the United States. However, she was in Nicaragua and ended up paying in excess of $1,500 in fees to have all documents notarized and delivered to the United States. That was due to a lack of experience on my and the title's agent part; we should have recommended that she take a flight into Miami, which would have been cheaper than paying the U.S. embassy. I have many adventurous stories like these with countries that I have dealt with in Latin America. In the end it was a great experience because as a Hispanic who grew up in the United States, I had a chance to visit most of the countries in Latin America and began to notice the major differences within Latin culture. These are some of the challenges you will face. You will need to become familiar with the transactions, the foreign national embassies and lender procedures. In addition, most lenders will require a copy of a valid current passport and a valid visa to live or visit the United States. For primary residences, the visa must allow residency for at least 12 months. Some foreign nationals have a Social Security number and credit, but do not have a legal permanent status and may be required to sign a W-8 or Certificate of Foreign Status. If the borrower receives income in the United States or has a tax identification number, then a W-9 is required. Many foreign nationals have established companies and have a tax identification number as well. Also, the United States is constantly changing foreign policy, immigration legislation and entry policies. The changes by the U.S. State Department cause lenders to change their programs according to these policies. For instance, the State Department has a Web site,, where there is a "Visa Waiver Program" section. This list is updated from time to time so underwriters will need to check the Web site to be sure that the borrower is not required to have a visa. Most borrowers who enter the U.S. under the Visa Waiver Program are usually limited to second homes or investment properties only. For primary residences, these borrowers are required to provide an acceptable visa with a minimum 12-month residency. Most European countries are under the Visa Waiver Program, but there are more than 30 countries on the list. There are certain countries that are not under the Visa Waiver Program but their documentation is exceptional; these countries include Mexico, Canada and Bermuda. Credit quality For most loans, an attempt will be made to pull all three credit bureau reports even for foreign nationals. However, if after the attempt is made, nothing comes back for the foreign national, most lenders will require several things: a traditional credit report with four credit trade lines that are at least 24 months old from their country of origin, and three trade lines if they have had a mortgage in the United States. If they had a mortgage in the United States, you will probably be required to obtain a verification of mortgage history because it will not appear on their credit report. These letters of credit will need to be translated into English. In addition, most lenders will require two original credit reference letters from a large international or financial institution in the United States, or from their home country. Asset requirements Most lenders will require a two-month seasoning reserve for foreign nationals. In some cases, there are programs with no asset requirements. In the event that they do require assets, they need proof of bank statements from their country translated into English and converted into U.S. currency. Also, in most cases they require the assets to be transferred to a U.S. bank. This can be a big issue because of the exchange rates. When foreigners transfer money, you need to act in the best interest of your client and know when the exchange rates are favorable for your client. Otherwise when they transfer the currency from their country into U.S. dollars, they may lose money along the way. Last, most lenders will require a copy of the transfer. Conclusion In a short article such as this one, we cannot provide full coverage of the foreign national marketplace and its relationship to the mortgage industry. There are other topics and issues to consider such as how to market to foreign nationals, world economics, political systems, mortgage products and preparing to deal with all of the issues in a global marketplace. But if you can master the system, this market segment can be quite lucrative because they usually have large sums of assets to invest in the United States. Gil Zapata is CEO/managing partner of KGFA Capital Partners LLC in Miami. He may be reached at (305) 379-4457 or e-mail [email protected].
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