The cold U.S. housing and mortgage markets have lenders looking for warmer possibilities, and a few are sending more efforts to finance Americans looking to purchase primary residences and second homes south of the border.

New York-based Lehman Brothers Resort Home Lending (1-866-233-4799) will enter the market in a big way, offering U.S. consumers mortgage packages this year in Mexico and Costa Rica, beginning July 1. The company plans to offer borrowers in Canada and the United Kingdom similar loan programs in Mexico and Costa Rica by the end of the year.

The programs, featuring one-, three-, five- and 10-year adjustable-rate mortgages amortized over 30 years, also will be available in the next year to U.S. borrowers who wish purchase in the Bahamas, according to Lehman Brothers. The company also is targeting the second-home market in Canada, the United Kingdom, Panama and the Dominican Republic, but specific roll-out dates were not released.

GMAC was the first national lender to introduce a 30-year, fixed-rate product south of the border but pulled out of Mexico late last summer when the U.S. mortgage market meltdown began to influence international partner companies. Lehman Brothers purchased some of GMAC’s Mexico back-office operation late last year.

Wachovia Bank also has launched a program that enables the bank to purchase vacation-home loans made in Mexico. The vacation-home origination process is designed to look and feel like the loan origination practices in the United States, according to Wachovia.

"Having the support of a successful U.S. bank like Wachovia really speaks to the strength of the vacation-home market in Mexico," said Joe Schneider, project administrator for Cascadas de Manzanillo, a 530-acre planned-unit development on Santiago Bay just north of Manzanillo, Mexico.

How have Americans financed second homes outside the United States? Traditionally, it was get out your line-of-credit checkbook, add any savings you could muster, and then pray that the seller would "carry the paper" until you found another way to refinance the balance.

Bryant said the company will scrutinize builders and developments in specific destinations. For example, Lehman Brothers will focus on waterfront and view communities in Mexico’s Riviera Maya, Los Cabos and Puerto Vallarta.

Underfunded projects and unscrupulous developers in popular drive-in areas, such as Puerto Penasco at the northernmost point of the Sea of Cortes and at a few oceanfront buildings on the northern Baja Peninsula, have lenders spending more time on analysis and research before electing to approve permanent financing.

Anaheim, Calif.-based World Wide Lending LLC, which plans 20 locations in Mexico, has begun to list its approved developments on its Web site. It plans to utilize a broker network throughout Mexico while Lehman Brothers will have retail sales relationships inside each approved development.

Chris Stopp, a broker for Sacramento-based MexUs Capital, said his goal is to provide a menu of attractive loans to not only second-home recreational buyers but also for retirees and sophisticated investors.

"The variety of people coming to Mexico to live part time or full time continues to increase, and their needs are different," Stopp said. "We want to offer them an American transaction in a development they will enjoy for a long time."

Interest rates on Mexican loans are nearly 2 full percentage points higher than those in the United States because there has been no competition in the secondary mortgage markets or with Wall Street capital markets to purchase the loans as securitized assets. Once the loans become more attractive and marketable to investors, interest rates will drop, according to financial analysts.

The Canadian offerings could provide an attractive option, especially with the 2010 Olympic Games in Vancouver just around the corner. Retirees and aging baby boomers "from the states" are drawn to Canada for its wonderful skiing, health care, bargain medicine, terrific sailing and clean air, but the numbers of second-home buyers and older full-time residents have not been as attractive to lenders as the pool of thousands of snowbirds who head south to Mexico and Latin America.

Americans can borrow from Canadian banks and vice versa. But trying to finance Canadian property with U.S. funds becomes difficult. Location, security in the property and the ability to enforce simply make the package unattractive to most U.S. lenders.

Lehman Brothers is willing to gamble that it can make cross-border lending work, and that the number of Americans buying in Canada — and elsewhere — continues to rise.

To get even more valuable advice from Tom, visit his Second Home Center.


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