“I plan to buy a house on the Costa Brava in Spain. Can I find a U.S. lender for the mortgage I will need?”

No, the best you could do is get a referral to a local (Spanish) lender. With very few exceptions, U.S. mortgage lenders don’t lend outside the United States.

In most other countries, you must be licensed to make mortgage loans, which U.S. lenders are not. Even if no license was required, U.S. lenders making mortgage loans in other countries could not enforce their liens against borrowers in default except by complying with the local rules regarding how liens are established and enforced. These rules are mainly determined by local laws and customs, and are often affected by local politics.

It is difficult enough, even in the United States, for a lender to take someone’s home away from them for failure to repay their loan. No lender wants to do it in a foreign country.

Even within the United States, our 50 states have 50 different sets of laws on lien enforcement. While differing in many important details, these laws have in common that they are written in English, and all provide lenders with the right to enforce their liens within a reasonable period by following some well-defined procedures that protect borrower rights. As a result, we have some national lenders who operate in every state. But we also have many lenders who don’t operate in all states, and many operate in only one.

Even in the United States, the process of enforcing liens may become politicized if the number of defaults in a state becomes very large. A U.S. lender experiencing heavy defaults in a foreign country would find the barriers to lien enforcement even greater.

A second reason that U.S. mortgage lenders don’t operate outside the country is that, with few exceptions, mortgage loans in other countries are made in the currencies of those countries. This would subject the lender to exchange risk. While many banks do cross-border lending in foreign currencies by hedging the exchange risks involved, this lending is relatively short term. Mortgage loans are long term and it would be extremely costly, if possible at all, to hedge exchange risk over their entire life.

The upshot is that when U.S. mortgage lenders elect to operate abroad, which some have done, it is in concert with a local partner. The U.S. bank provides the expertise, systems and business processes, but the partner makes the loans and enforces the liens.

Occasional exceptions arise in the case of our close neighbors, Canada and Mexico. For example, vacation houses can be purchased in areas of Mexico that are attractive to U.S. residents, which are financed by U.S. lenders. Both the houses and loans, however, are priced in dollars rather than pesos.

A Post-Mortem on Selecting a 15-Year Over a 30-Year Mortgage

In a recent column I advised that borrowers who can afford the payment on a 15-year fixed-rate mortgage but who take a 30-year in order to invest the cash flow savings were likely to end up poorer for it. The reason is that because of the lower rate on the 15, the required return on the cash flow savings is very high. For example, if the rates are 6 percent and 5.625 percent, and the borrower expects to have the mortgage five years, the required return on cash flow savings is 10.49 percent.

Some readers justifiably took me to task for not recognizing that some borrowers did indeed have access to high-return investments. A case in point is the borrower who is eligible for but not currently utilizing IRA, 401k or other qualified tax-deductible or tax-deferred plans. Borrowers who use their cash flow savings to invest in these vehicles can earn a very high rate of return. The same is true of borrowers who use the savings to pay down high-rate credit-card balances.

That I didn’t mention these possibilities in the article probably reflects my cultural chauvinism. I assumed that borrowers who have not fully exploited all tax-advantaged investments, or who have high-rate credit-card balances, are unlikely to have the iron discipline required to invest the cash flow savings month after month. I still believe that this assumption is partly right, but some financial planners who wrote me argued persuasively that I was partly wrong. They develop plans for borrowers in such situations, and they report that in most cases they are successful. I wish them well!

The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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