Russ Schreier, CEO, Finance North America
In 1994, Schreier joined Cendant PHH Mortgage (Coldwell Banker/ERA/Century 21) as a regional manager for North Western United States. In 1998, Schreier was recruited as the executive vice president of First Capital as regional sales and operations manager for the San Diego region of the Prudential California Realty’s 30-plus real estate offices. During the next seven years, Schreier built the division up from $10 million in monthly volume and six staff members to $160 million and a staff of 40 loan officers and more than 60 processing, underwriting and support staff members.
Schreier began exploring the Mexico real estate market, and he saw an opportunity to build an international company that provides lending to U.S. citizens purchasing and building homes in Mexico. In 2004, he collaborated with GE to create a U.S. dollar based financial product. In mid 2004, he resigned from First Capital Group to pursue becoming creator and president of FNA, along with associate Christian Alvarez, who came on board as vice president of sales.
NuWire: What types of properties are your clients generally looking to purchase?
Schreier: Typically single family resort, condominium, whether it be high rise or low rise...typically in the resort areas of Mexico. Not just in the coastal zones...geographically speaking, they're looking in areas such as Puerto Vallarta, Los Cabos, Puerto Penasco, Cancun, Ixtapa, Acapulco, Mazatlan [and] Lake Chapala and San Miguel de Allende, which are non-coastal, but areas which many Americans and Canadians purchase and we loan in.
NuWire: What is the current LTV available for Mexican properties?
Schreier: 80 percent loan to value, and the rates range anywhere in the 8 percent range, depending on the down payment. If you're putting, say, 20 percent down, you can get rates as low as 8 percent on an intermediate ARM [and] up to 8.75 percent on a 30-year fixed on a full income documentation loan. So just like in the United States when you have full alternate stated documentation, we have the same thing. As you're changing your document types, the interest rates tend to go up a little bit. If you want to shorten your amortization period, meaning going for, say, a 10-year amortization rather than a 30-year, so your payments are going to be higher, the rate's going to actually go down from there.
NuWire: Do you offer interest-only loans?
Schreier: No.
I think something to keep in mind in Mexico mortgages is that it's new....There was one go around of Mexico mortgages that was done by GMAC around the year 2000. They went in, then they pulled out. They were only in it for about six months.
And then the second round of it has just occurred two years ago starting with GE and now again with GMAC. We pioneered both of their products. And then Scotia Bank is coming into the mix.
None of these loans have been sold on the secondary market yet, so unlike in the United States where you have this huge mortgage backed security market, that causes product development, that...allows for multiple interest rates...hundreds of different lenders, that just doesn't exist in Mexico for American and Canadian citizens' loans yet. And for Mexican citizens...peso backed lending, it's only been securitized for the last one year. So you're looking at a market that's typical of what a market looked like in the U.S. in the 1940s as far as mortgages go; it's...still in its infant stages, really.
NuWire: Are those rates and terms for full doc or stated income borrowers?
Schreier: Those were for full doc. If I start going alternate, you know, meaning...bank statements or stated income, the rates go up from there.
Typically they have about a quarter percent interest rate bump for each of those...doc types.
Schreier's clients typically purchase property in areas like Ixtapa, Mexico
Do they change in any other way?
Schreier: No, that's basically it. Sometimes they'll require more down, so for instance, on 20 percent down I have to go full doc, but if I want to go alternate or stated I can do that with as little as 25 [percent].
And then what we're hoping for by year end with the issuance of mortgage insurance on our loans, going up to 90 or 95 percent loan to value.
NuWire: What types of debt to income ratio are needed to qualify?
Schreier: Anywhere from 45 to 55 [percent], full doc.
NuWire: Over the next three to five years, do you see rates staying the same or going up or going down?
Schreier: As you get more competition coming into the market and as these are securitized, I actually think you're going to see the rates go down provided that you don't see interest rates in general go up a lot.
If all of the sudden you have 15 percent interest rates on mortgage loans in the United States and Canada...your rates are probably going to go up. But let's just say they stay around the same...not fluctuating a whole lot, then you should see these rates go down.
The reason for that, one, we're taking…really "A" paper borrowers with good down payments...high credit scores, relatively speaking, and you're putting them into a property in Mexico that's owned in a bank trust, a fideicomiso, and that bank trust allows for a nonjudicial foreclosure process. So what that means is if someone doesn't make payments, the trustee tries to get a hold of the borrower, say, "Hey, you need to show proof of payment." If you don't, the contract that's written in that fideicomiso allows for that home to be sold. So you don't have to go through a long judicial process like you would with a mortgage in the U.S.
NuWire: Does your company typically do owner occupant, second home [or] investment property type loans?
Schreier: We don't do investment...they're all owner-occupied second homes.
We won't use, for instance, income that someone thinks they'll be able to get out of the property if they rent it or something like that for qualifying.
NuWire: How do the loan terms change based on how the buyer is going to use the property?
Schreier: Second home and primary residence are the same.
NuWire: How difficult is the financing process for a U.S. buyer?
Schreier: The credit process is identical to a loan in the U.S. It's quick, we're asking for the same things. The difficult part in a transaction is actually legally transferring title over in Mexico.
That's anywhere from the permitting process to the research on the existing property and making sure that the documents are lined up correctly to legally transfer title because...what we're utilizing for collateral here is that property in Mexico, so we need to make sure that the title's transferred properly and the new fideicomiso's put in place properly. So it's really not any different than transferring title if you were doing a cash transaction; it's just a matter of making sure that the title's actually transferred properly.
NuWire: Do you...offer construction financing?
Schreier: On a limited basis. It's only in certain developments. So we do our due diligence on the development first. We don't offer it, for instance, if someone was to just buy a lot somewhere...in a non-approved development.
NuWire: You...go in and do a case by case [analysis]?
Financing is popular in areas like Acapulco, Mexico
Yeah, basically. Or...we'll take a development that is doing a master planned development that they need construction financing for the individual purchasers that are buying there, so they'll close on their lot, the home's already selected of what's going to go up...based on the purchase agreement they have with the developer. And we do our due diligence...on the financials of the developer and the title of the properties, etc., and then we do construction financing for those.
NuWire: Do loan terms differ based on how the client's purchase is structured?
Schreier: As a foreigner buying in Mexico you have to have it in a bank trust; you don't have a choice. If you're talking about, do they put it in a Mexican corporation or something like that...legally you can only have a Mexican corporation own a property if that property is for investment purposes only, so you can't have a Mexican corporation where...you're the foreigner that owns the corporation and then you use it for your private purposes; it doesn't allow for that. So given that our loans are only for primary residence and second homes, we won't loan to a Mexican corporation.
NuWire: What areas of Mexico do you get the most activity in as far as people wanting financing?
Schreier: It's all over the resort areas.
The bigger volume places are Puerto Vallarta, Cancun...the Riviera Maya, southern Baja, northern Baja—so specifically if you're in Los Cabos, anywhere from Loreto, La Paz, Los Cabos—and then northern Baja, so Tijuana Playa down through Ensenada. Acapulco, Mazatlan, Ixtapa, Puerto Penasco is big....San Miguel de Allende is pretty big. Lake Chapala seems to be coming on. We get the occasional for...areas like Guadalajara or Mexico City but those are primarily people that are...moving there for a business type relationship.
NuWire: Do you have anything else you want to add about real estate financing in Mexico that you think people should know about?
Schreier: You just want to be careful when you're purchasing in Mexico that you don't do something that you wouldn't feel comfortable doing in the United States.
An example of that would be...you buy something for $500,000, yet you record the value at $200,000....You don't want to do that because it would affect your capital gains when you sell it in the future. Or giving a large cash deposit to someone...without having an attorney review the contract you have....In Mexico there aren't standardized contracts like you have in the U.S. or Canada that are...reviewed by government agencies. Literally, the contract is what's written and...they could be very seller-biased or they could be buyer-biased.
So it's a good idea to have someone review any contracts before you sign them.
If at all possible, have all deposits put through an escrow...rather than just being released.
