The conditions are far from ripe, but over the long term, the potential is enormous.
So say mortgage bankers in the United States, who are laying the groundwork for their long-term expansion into Mexico.
The Mortgage Bankers Association plans to hold a conference next spring in Guadalajara to accelerate the development of this sector of the banking industry in Mexico.
Topping the agenda is the creation of a secondary market for mortgage loans, similar to the U.S., which would allow the mortgage bankers to maximize their penetration of the Mexican market without having to allocate large amounts of capital.
Conditions in Mexico aren't ready yet for either mortgage banking or the creation of a secondary market, said David Fulton, a member of the MBA and president of Inland Mortgage Corp. in Indianapolis.
Fulton, who made a five-day trip to Mexico in September to assess the situation, notes that interest rates remain too high to make mortgages affordable for most Mexicans, and the laws governing the transfer of ownership would prevent a secondary market from emerging.
In the long run, Fulton and other MBA members see great potential south of the border. Relative to the U.S., only a tiny percentage of Mexico's population has ever held a mortgage. Land reform laws enacted several years ago have changed the system of property rights, creating the first individual titles to land in many rural areas. And Mexico's economic boom has created an enormous demand for new housing in industrial areas.
Even more important, Mexican officials are eager to work with U.S. bankers in setting up a secondary market. That's a remarkable change for a country that until recently was extremely sensitive to any sign that it was dependent on the U.S.
"We talked with credit reporting agencies, bankers, lawyers, developers and government officials during our trip," said Fulton. "We verified that there is opportunity in Mexico, there is need and they want us to come in."
Fulton, whose bank expects to originate $4 billion in mortgage loans this year, is a member of an international MBA committee formed this year to look into emerging markets in Eastern Europe and Latin America.
Prior to his trip, Fulton considered Eastern Europe and Mexico as equally important priorities for U.S. mortgage bankers. The MBA has also received encouraging reports from representives it sent to visit Poland. But given the positive results of Fulton's trip - and the recent political events in Russia - Mexico seems a lot closer to fruition than Eastern Europe.
Fulton conceded that the passage of the North American Free Trade Agreement will be an important factor in his plans. Under existing laws, the Mexican market is almost completely closed to foreign financial institutions. But he's confident that the Mexicans will open their system to U.S. mortgage bankers.
"Everyone we spoke with encouraged us to continue with our plans, whatever happened to the Nafta," said Fulton.
In any case, it will probably take several years before Inland will be able to move into that market. "We're a long way from structuring any deals," said Fulton. "Right now, we're at the stage of helping Mexico set up a legal and infrastructural framework to permit a secondary market to grow."
