Magazine article Mortgage Banking

Lessons from International Markets

Magazine article Mortgage Banking

Lessons from International Markets

Article excerpt

I come to wive it wealthily in Padua;
If wealthily, then happily in Padua.
--PETRUCHIO, IN WILLIAM SHAKESPEARE'S The Taming of the Shrew

In Shakespeare's play The Taming of the Shrew, Petruchio arrives in Padua from Verona in search of a wife. He is willing to put up with just about anything to successfully marry a rich woman--after all, the main objective of his quest is fortune, not love. More recently, U.S. mortgage-related businesses have been expanding into international markets in search of fortune. Like Petruchio, they will find fortune only if they have the preparation, patience and persistence required to succeed in the punishing but potentially promising task of "taming the shrew."

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For the last few years, many of my conversations with industry players from all parts of the U.S. mortgage business have increasingly included questions about the attractiveness of entering the international mortgage market. In fact, many companies, including my former firm, GreenPoint Mortgage, have already established offshore back-office operations.

Some firms have entered foreign markets in search of revenue opportunities, and a few have already succeeded. Some have already failed, and others are in the process of getting started. My current company, Radian Group Inc., entered the international market a few years ago.

Recently, I had breakfast with a friend who happens to be the chief financial officer of a leading United States-based financial services firm. I was seeking words of wisdom based on his extensive international experience. On a sobering note, he joked that he had become an expert on everything you can possibly do wrong in pursuing opportunities in international markets.

His advice was to approach these markets in a measured and deliberate manner. It is critical, he pointed out, to identify the right markets and to choose the right partners. Easy to say, perhaps, but how exactly does one go about doing that?

How our market stacks up

We in the United States are justly proud of our housing industry. We certainly have the largest housing and mortgage market. In fact, with current outstandings in excess of $9 trillion, according to the Mortgage Bankers Association (MBA), our one-to-four-family residential mortgage market represents the largest form of debt in the entire world. Even more impressive, this market has grown from $6 trillion in the last 10 years, and I have heard some speculate it could reach the $15 trillion to $20 trillion level by 2020.

We also have the widest range of home-loan products, relatively stable liquidity and the availability and widespread use of 30-year, fixed-rate loans--a financial option not nearly as popular in most other parts of the world. But there are some other markets that also have some attractive qualities.

In an article entitled "In Come the Waves," written last year, the Economist compared home-price increases in various world markets for the period 1997-2005. While price appreciation was incredible here, we were not leading this trend.

South Africa saw its property appreciate the most rapidly, with a 244 percent change. Ireland, Britain and Spain were not far behind, with rates of 192 percent, 154 percent and 145 percent, respectively. Australia rounded out the countries that experienced triple-digit appreciation, with 114 percent.

The United States, with home-price appreciation at 73 percent, was comparable with New Zealand at 66 percent, Italy at 69 percent, Belgium at 71 percent and the Netherlands at 76 percent. Sweden and France both ranked higher than we did, with 84 percent and 87 percent, respectively. Of the countries the publication covered, only Denmark and Canada saw their real estate grow in value more slowly over this period than the United States, with 58 percent for the former and 47 percent for our neighbor to the north. …

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