TOPIC OF THE MONTH / NEW LENDING PROGRAM / MAP MEMBERS / TESTIMONIALS

Topic of the Month

THE SUBPRIME MORTGAGE FINANCIAL CRISIS

2007 will be remembered as one of the most troubling years for the financial markets and United States real estate industry.

Some may say, including many politicians, that the trigger for the subprime mortgage financial crisis of 2007 was the increase in the discount rate by the United States Federal Reserve to curve inflation. Such a move, they argue, had a direct impact on the default rate of non-conforming loans, typically referred to as subprime mortgages, since interest rates had to be reset higher. We disagree.

Blaming the system is always the easy way out. The function of any financial institution is to asses risk and to determine its clients’ ability to repay a loan under predictable market conditions. Interest rates, on a historical basis, continue to be low, and we are not facing challenging times, as it occurred in the early 80s, when LIBOR skyrocketed to almost 30%.

The Root of the Problem

The problems lie elsewhere, and it’s discouraging to learn the facts. There are three major processes involved in mortgage origination, and they all seem to have failed in one way or another.

The first process involves credit analysis, and it is the heart and soul of the financial system. The U.S. has one of the most sophisticated credit reporting systems in the world. The information is readily available to anyone at a marginal cost, and credit analysis can be performed by a teenager in high school with basic statistics skills. History on credit cards, mortgage loans, leases, payment history – or lack thereof – and income of every individual with a social security number can be quickly determined. Predicting someone’s ability to repay a loan should not be a challenging task, yet there are thousands of mortgagors who will not be able to make their payments as interest rates reset higher in early 2008. The intriguing issue is that we know in advance this will happen. Why did the system fail to predict this in the first place?

The second process is appraisal of the collateral. A financial institution is not in the business of foreclosing on the collateral at a discount. Yet, in case of default, this will be its source of repayment to safeguard the deposits of millions of hardworking individuals.

Determining the value of the collateral is not a difficult task either, as information in the U.S. is also readily available. Almost 100% of every real estate transaction in this market is accounted for due to the beauty of multiple listing services, a scarce resource in developed and undeveloped countries alike. However, the system created exuberant mortgage products with 100% loan-to-value, negative amortization loans, or loans to flippers buying second homes to speculate with collateral at above average market prices, assuming that real estate prices would continue their upward trend. The last 18 months have proved them otherwise.

The third process is assessing title issues and properly documenting the loans to make them compliant. Recent data on defaulted loans show that many prime mortgage loans do not comply, that some of the standard documents are missing or, even worse, that documents were forged to make the loans compliant. Fortunately, as it relates to title issues, the system has come out clean, and title companies have fulfilled their role, eliminating title risk from the financial system’s balance sheet through title guaranty.

Lessons Learned

Financial institutions and regulators in emerging markets throughout Latin America should learn from these mistakes. Solid underwriting guidelines and statistical information should play a key role when assessing credit and appraisal risk. Title risk can be easily spun-off to title companies.

We, at Stewart Title Latin America, with the largest footprint of local offices in the region and thousands of real estate transactions electronically documented, can play a key role in eliminating title risk issues, while helping you assess market prices, trends and comparable pricing information. This will in turn help the financial system make a more informed and efficient transaction, while reducing risk. We invite you to call the local office closest to your market, and let our real estate professional experts help you improve your mortgage origination process.

Carlos Gonzalez J.
Chairman of the Board
Stewart Title Latin America

New Lending Program

HSBC- NON RESIDENT SECOND HOME LOAN PROGRAM

HSBC pioneered in Costa Rica a few years ago with the first non-resident home loan program, and they have demonstrated to be one of the most solid lenders in the market. Here's an update of their terms and conditions.

Property Types

• Second home or vacation property (single family residences, condominiums)
  
• Residential Lots
  

Lending Program for construction and finished home

TERMS & CONDITIONS

Loan Terms Finished Home & Construction Residential Lot 20 years 12 years Interest Rates (according to Credit Score) Credit Score Financed Home Residential Lot 700 - 725 Prime rate + 5.5 % (10.5%) Prime rate + 5.5% (10.5%) 726 - 750 Prime rate + 5 % (10%) Prime rate + 5.25 % (10.25%) 750 + Prime rate + 4.75% (9.75%) Prime rate + 5 % (10%) Prime rate = 5 % Minimum Interest rate 9.75% for Home Purchases 10% for Land Type of rate Adjustable Reviewed Quarterly Loan to Value (%) Up to 70% for Home Purchase Up to 55% for residential lots (subject to loan amount and credit score) Prepayment Penalty Not Required Asset Verification Not Required Life Insurance Required (U.S Policies Accepted)

This information is intended to be used as reference only. All rates, terms and parameters are subject to change without prior notice. More detailed underwriting criteria will be available upon request.

General Guidelines

• Minimum accepted credit score is 700
• Second home purchase vacation property or residential lot.
• Full doc application
• 30% indebtedness level required

Start an Application

For Loan Officer Assistance you can contact us at map@stewartcr.com.

New Members

As of September 29, 2008, 73 members representing the most renowned real estate companies in Costa Rica are part of the Mortgage Alliance Program.

Let’s meet the companies with new MAP memberships in September.

Welcome!

Companies

Testimonies

The best recognition we can get is our customer’s satisfaction… Quite simply, Carolina was CRUCIAL to the completion of the purchase. She went "above & beyond" by giving me translations on multiple occasions, which were needed to keep things on schedule, since I am not fluent in Spanish (not even close). I now have a condo, and it wouldn't have happened without her effort.

- Brad Dey -

Mr. Rodríguez was very professional, and his English made this transaction possible. I would absolutely recommend Stewart Title Services to anyone looking to purchase.

- Gary Neil -