Non-QM loans can be perfect for foreign investors

by Ryan Smith25 Jan 2017
Nonprime loans can be valuable tools for mortgage originators, allowing them to help customers for whom homeownership might otherwise be out of reach. But nonprime loans aren’t just for customers who’ve had credit problems. They can help a variety of prospective homebuyers – including foreign investors.

Foreign investors can often be at a disadvantage when searching for property in the US, according to Will Fisher, marketing director and senior vice president of national sales at Citadel Servicing Corporation.

“Basically, as a foreign national they’re not afforded any of the protections a US citizen would be,” Fisher said.

Citadel has a program that can help foreign investors find the mortgage they need to purchase property in the US. Called the ODF (or Outside Dodd-Frank) program, it can help borrowers who have the means to repay a loan – but don’t necessarily tick off every box of the Qualified Mortgage rule.

“One of the things that all loans – especially QM loans – have to adhere to is that they have to show that a borrower has the ability to repay the loan,” Fisher said. “What people don’t realize is that there’s an actual provision inside Dodd-Frank that says that as long as the borrower can show they have adequate resources to repay the loan, they don’t necessarily have to have a current income.”

That comes in handy for foreign buyers, since foreign financial systems may present challenges to US businesses trying to verify a borrower’s income.

“It’s hard to document people’s incomes if they’re in another part of the world,” Fisher said.

But with the ODF loan, foreign borrowers can get a mortgage without having to jump through the hoops necessary to satisfy QM requirements.

“We can go up to 75% loan-to-value, and it can be a stated-income loan. As long as the borrower can show they have the ability to repay the loan, we’re good to go,” Fisher said. “We don’t pull credit on those loans; all we need is a passport and maybe a letter of good standing from their current financial institution. If they want to buy a property here and have the 30% to put down, we’ll make the loan for them.”

Most of Citadel’s foreign buyers, he said, use the ODF program to purchase investment property.

“They like the cash flow, just like everyone else,” he said. “Some do it as a second home – we get some snowbirds from Europe who like to spend the winter in Florida. Same thing in Silicon Valley. We have investors who come out to new tech companies to kick the tires, and they like to have a place to stay. But mostly it’s investment properties.”

Foreign buyers represent a largely untapped market for mortgage originators, Fisher said.

“It’s not a huge set of borrowers, but it’s a very well-off set,” he said. “…A lot of them want to move their money out of other, more volatile economies into the US economy. And if you have a product for it, you can take advantage of it.”

Some brokers might shy away from foreign buyers, worried that a borrower on another continent might be more likely to default. But Fisher said that wasn’t the case.

“People with that kind of net worth are really good about making their payments, so it’s really a win-win for everybody,” he said. “It’s about the skin in the game. Not many people are going to walk away from 30% down. Most of these borrowers are buying homes north of $600,000 – usually more than a million. They have a tough time walking away from $300,000 or $400,000 down.” 

And Citadel’s foreign customers have been very happy with the ODF program, Fisher said.

“When they see that it truly is just a passport, and you show that the funds are in a US institution, people are really excited about it,” he said.



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