Finance companies are flocking to Mexico to take advantage of the billions of dollars in nonperforming assets left there in the wake of the peso's devaluation.
Most recently, Amresco Mexico, Mexico City, a unit of Amresco Inc., Dallas, outbid Goldman Sachs & Co., Lehman Bros., and others for the servicing rights on a $341 million portfolio of commercial and industrial loans originated by the former Banco del Oriente. Amresco paid $9 million for the rights and will receive a management fee and a portion of the recoveries.
In the three and a half years since the peso's initial devaluation, Mexican banks have found themselves stuck with large portfolios of nonpaying loans. U.S. finance companies, which specialize in dealing with difficult borrowers and delinquent loans, are stepping in and using their expertise to wring profits from these loans.
Estimating distressed mortgage assets in Mexico total between $60 billion and $65 billion, Gary Adams, senior vice president of asset management at Amresco, said, "There's a huge problem down there." Most of these loans have been originated through local banks, which do not have experience collecting bad debt.
"We've been doing this for so long and feel like we have an excellent approach and philosophy," Mr. Adams said. The company's overseas distressed-asset strategy has already been tested in Canada and Europe, he said, and has been "meeting with good success."
In Mexico the industry of turning around distressed loans is "still very much in its infancy," Mr. Adams said. "We bring established, proven procedures and high technology. It's a more disciplined approach to resolving nonperforming assets there."
Amresco is pursuing similarly structured deals, Mr. Adams said, where the company gets a portion of the recovered cash.
Residential Funding Corp., the mortgage arm of GMAC, Minneapolis, the finance unit of General Motors, also has recently stepped into the Mexican nonperforming mortgage arena. In mid-March it purchased Auritech SA, a distressed-asset servicer in Mexico City.
Not all American lenders have been successful in Mexico. WMC Mortgage Corp., Woodland Hills, Calif., sold the servicer WMC Mortgage Servicos de Mexico after two years. The unit "wasn't a core business," a company spokesman said. "It's an environment that requires a fair amount of time and effort," he said.
Despite a presence in Mexico, many finance companies are still shying away from originating residential mortgage loans there. Associates First Capital Corp., Dallas, has 53 branches in Mexico and $72 million of assets. But most of those loans are commercial and unsecured personal loans, a company spokesman said.
Associates "has not talked about" making residential mortgage loans in Mexico, the spokesman said. "Most of our customers there tend to be renters," he said.
But Amresco's Mr. Adams said residential mortgage lending is "upcoming" in Mexico, and that Amresco is "tracking development of that market."
Currently, residential mortgage lending is only 6.5% of Mexico's gross domestic product. In the United States, mortgage lending makes up 45%.
Many countries in Latin America still do not have a mortgage market because of the unreliability of the currency, said Christopher Seymour, partner with Fox, Horan & Camerini, New York. Current interest in mortgage lending there is "not a resurgence, it's a birth due to a sense that the currency is more stable."
Large money-center banks may lose out to companies like GMAC, which are "poised to gobble up the market," Mr. Seymour said. Citicorp is the "only U.S. bank with a branch in Mexico," he said.
Citicorp does not make mortgage loans through its Mexican branches, a spokeswoman said.