Ocwen Financial, Countrywide Credit Industries, PMI Mortgage Insurance Company and Pulte Mortgage Corporation all have stories to tell about working in foreign mortgage markets.
THE U.S. MORTGAGE INDUSTRY HAS EARNED THE RIGHT TO VIEW ITSELF AS SUCCESSFUL. In providing generations of Americans with affordable housing, it has promoted social and political stability and given financial institutions a core activity around which they can build. It has energized investment markets through the development of sophisticated securitization techniques. And it has generated significant benefits for such ancillary actors as lawyers, accountants and insurers.
But the United States-as large as it is-is but one country in a very big world. Mortgage companies and the specialists who serve them are becoming increasingly aware of the potential benefits of globalization. The most far-sighted people in the business have realized that what has worked at home could, with some adjustment, also work abroad. Such people understand that foreign markets will become increasingly important to U.S.-based organizations in the pursuit of higher revenues and profits.
The initial focus of overseas mortgage activity is likely to be on such support services as securitization, information tec hnology, mortgage insurance, legal advice, accounting and consultancy.
A number of U.S. organizations have already moved into foreign markets. Specialty financial services company Ocwen Financial, West Palm Beach, Florida, is staking out a place in the European servicing market, with an eye on Asia. PMI Mortgage Insurance Company, San Francisco, hopes to build an international presence from its initial experience in the Australian mortgage insurance market. Pulte Mortgage Corporation, Englewood, Colorado, is looking to Latin America, in partnership with its parent, Pulte Homes Inc., Bloomfield Hills, Michigan.
Countrywide Credit Industries Inc., Calabasas, California, has established itself in the U.K. mortgage market. The company's consulting operation, Countrywide International Consulting Services (CICS), also of Calabasas, has global ambitions.
None of these companies is in a headlong rush to conquer foreign markets. Organizations that are pursuing mortgage opportunities abroad are doing so because of the potential rather than in hopes of immediate returns. "I think most of them are realistic," says Michael Marez, senior vice president for Latin America at Pulte Mortgage, "in that they know that it's going to take a long time to develop that business."
Marez says that U.S. organizations considering entering foreign mortgage markets should look for certain elements. For a start, Marez says, there should be a well-developed primary mortgage system, under which property is freely transferable. Other desirable features, he adds, would include efficient foreclosure mechanisms, clear creditor-debtor laws and a dependable judicial system. Marez would also like to see a reliable--preferably nongovernmental--funding source for long-term mortgages. "And that's a big problem in most countries," he says.
Paul Schieber, chairman of the consumer financial services and retail banking group at the law firm Blank Rome Comisky & Mccauley, Philadelphia, has a similar wish list. The U.S. mortgage organization looking abroad, Schieber says, should begin by "identifying countries that are creditor-friendly in terms of bureaucracy to get approval to do business." This would involve close analysis of a market's foreclosure mechanisms. Attention should also be paid to a country's overall economic condition, an important factor in currency risk. And Schieber says he would look for a functioning secondary market, or at least the determination to create one.
The U.S. organization should also be prepared to do some missionary work. It is not always easy, Schieber says, to persuade overseas lenders of the benefits of securitization. Moreover, U.S. companies should understand that they will have to adjust their own ways. Schieber, who argues that Americans are isolationist in their views of the outside world, advises clients not to go to foreign markets assuming that they know best. "I think Americans have this haughtiness," he says, "that we know how to do it and no one else does."
Randy Appleyard, principal at AGS Financial, New York, cautions that there is little scope for U.S. organizations to shape the overseas environments in which they hope to work. The U.S. companies, he says, would do much better to adapt themselves to the different conditions that they will find abroad. "You can't take a U.S. model and drop it into another market and expect it to really work," Appleyard says.
Michael Lea, president of Countrywide International Consulting Services, agrees. "There's not a formula," he says. "Every [market] is different. I certainly think we learn each time we do this. And, as a consequence, we become better at anticipating and responding to client needs."
But even allowing for inevitable differences abroad, Schieber finds validity in the American view that the overall U.S. mortgage model is transferable. He stresses that U.S. organizations have a great deal to offer other markets. "We have streamlined the process," he says. "We have created a very fluid secondary market, which I think Americans would love to see copied overseas, because then they could just plug in."
Companies targeting a foreign market, Schieber suggests, should strive to get the balance right between opportunity and the likelihood of competition from other entrants. It is not difficult, he says, to identify countries with efficient secondary markets, effective foreclosure systems, stable currencies and strong economies. So easy is this evaluation process, he adds, that other companies are also likely to be able to pinpoint the countries with the best prospects. "So the ability to make a lot of money," Schieber says, "may be in countries that are not on the top tier. But obviously, there is more risk involved."
According to Schieber, overseas expansion will also involve an organization in miscellaneous issues that are not unique to the mortgage sector. Companies need to recruit talented people who must be able to function in foreign environments, he says.
Differences in legal climates can present particular challenges. Schieber cites France and...