Mortgage Madness In Panama
Last week, before leaving Panama for Christmas in the United States, I met with a third bank in an effort to secure a mortgage for an apartment purchase in the city.
The front line banker was courteous and wanted to be helpful, but, as I’ve learned over the past couple of months, the person you meet in the branch and turn your application documents over to is simply an aggregator of paper. He or she has nothing to do with the credit analysis or approval process.
This girl, however, was clever enough to bring a manager into the conversation while I was there. Assuredly, my situation isn’t typical. It doesn’t fit into any known box. Unfortunately, bankers in Panama seem to be able to operate only in boxes.
Don’t get me wrong. As a former accountant, I like boxes, too, but I recognize that sometimes you have to ignore them to be able to make a good business decision.
The bottom line for me is that none of the banks I’ve met with nor any of the four or five that I communicated with via e-mail or over the phone will make the type of loan that I’m looking for. It’s not an unreasonable mortgage request. In fact, it’s conservative compared with mortgages I’ve obtained in the United States and elsewhere. A simple 80% loan-to-value (LTV) mortgage with a 30-year amortization period at the local interest rate (non-residents are automatically charged a 1% government surcharge for second homes, under the presumption that you already have a primary residential mortgage wherever you’re living; Panamanians with a second home/mortgage are charged the premium, too).
The request seemed simple enough to me, and, as a legal resident of Panama, I should, in theory, according to some banks’ advertising, be able to get a mortgage for as much as 98% LTV.
But then there are the boxes.
Boxes To Qualify For Bank Financing In Panama
First box has to do with residency. My residency permit is one that requires five applications before granting me permanent residency. Until then, the banks consider me a vagrant with no right to stay in the country. An absurd position, but no one ever claimed bankers were rational. And, despite my attempts to explain how residency and immigration work in Panama to these Panamanian bankers (I know more about it than most of the attorneys in the country), they weren’t interested. So while I do, in fact, have the legal right to stay in Panama and my residency permit isn’t going away, I’m a “foreigner” for mortgage purposes.
As a foreigner, the maximum LTV I’m eligible for is 70%. The bank I spoke with last week told me the most they could do for me, as a foreigner, would be 60%.
The next box has to do with income. My income comes from outside of Panama and is paid outside of Panama. Panama banks will use your U.S. tax return for the loan application. However, they don’t seem to understand how to read a U.S. tax return. I take the Foreign Earned Income Exclusion, which shows up on line 21 of Form 1040 as a big negative number…a number the bankers see as reducing my income. You see the problem.
The final box has to do with credit reports. Banks here in Panama will want to see your U.S. credit report, but, again, they don’t seem to understand how to read one, especially when it comes to credit cards.
I have a number of them. In the context of U.S. credit, this isn’t a bad thing. In fact, it can be a good thing. I have a number of cards with high credit limits. Not high balances…but high limits. Again, in the States, this is interpreted as a plus. I’m credit-worthy, and I know how to manage the credit I have.
Banks in Panama, however, look not at credit limits versus credit balances. They care only about total credit limit. This is what they use to calculate your debt-to-income ratio. No matter how hard you try to explain that available credit on a credit card isn’t debt, they don’t get it. Fortunately, our American Express has my wife’s name as the primary card-holder and isn’t showing up on my credit report. How would they factor in an AMEX card, I wonder, with its unlimited monthly credit?
The banks’ solution to my “debt” problem? They suggest I cancel my credit cards. My real estate agent, a Panamanian, concurs. In fact, that’s what she did when she was trying to qualify for a mortgage herself a few years ago. After 15 minutes trying to explain to them that I couldn’t run my business or my life without credit cards, I gave up.
The bottom line is that, yes, in theory, banks in Panama will lend to non-Panamanians, but, as with so many things in this arena, that’s not the full story. The trick is getting approved for the loan. To do that, you’ll need to eliminate your credit cards (not just your credit card debt) or have huge income compared with your credit card limits plus your new mortgage payment. And you’ll need to put down at least 30% for your purchase.
P.S. The banks where I met with live bankers are Scotiabank, Towerbank, and Banco Trasatlantico. I have accounts with Scotiabank, so I approached them first. Their mortgage rep had no idea how to calculate a debt-to-income ratio.
Representatives at the other two banks were extremely diligent in document collection, but, again, they were just paper-pushers in the end, not capable of or interested in having a conversation to try to understand my situation.