Mexican banks are making headway on legislation that will allow for the transfer of mortgages and pave the way for securitization. Despite the disruption of a presidential election in August, industry participants expect that a new law will be in place before the end of the year.
The long-term goal is to develop a stable and liquid mortgage market in Mexico by allowing Mexican banks access to dollar funding. This would lower the banks cost of funds, ultimately resulting in lower and stable mortgage rates for borrowers between now and then, however, there are a lot of things that need to come together, noted Pat Jordan, director in the international ratings group at Standard & Poors in New York.
Mortgage securitization has been blocked because Mexican banks can only transfer loans to other financial institutions under current law, according to Carlos Mena, managing director in the New York office of Bancomer. This precludes the sale of mortgages to a special purpose vehicle.
This legal anomaly has produced an interesting result: Mexico has plunged into more complex types of securiti-zation first without developing a secondary market for conventional assets like mortgages and auto loans. Securitization of receivables, for example, has already taken place.
The large Mexican banks including Bancomer, Banamex, Banco Mexicano, and Banca Serfin have all issued private, dollar-denominated credit card deals in the United States, while Mexican companies have securitized future toll road revenues and oil receivables. Legal issues have not been a deterrent to these transactions.
Now, Mexico is looking to catch up with other countries in Latin America, namely Argentina and Chile, which passed securitization laws last year, said an investment banker active in Latin America.
After working off-and-on for a couple of years on the project, Mexicos big banks have actively lobbied government officials in recent months to pass legislation that will facilitate mortgage securitization, sources said. Its a possibility for this year, regardless of the outcome of elections on August 21, said Mena.
Once legislation is passed, there are other obstacles, however.
Legislation would be one issue. Standardization would be another, one investment banker stated. Mortgages are not originated in any standardized way, which makes securi-tization difficult.
More important, most mortgages in Mexico are negative- amortization loans indexed to inflation with no cap, another source said. This means that as inflation rises, the additional costs to borrowers are attached to the tail of the mortgage, essentially creating a perpetual loan. Structuring a deal would be difficult, and off-balance sheet treatment is probably not possible, the source explained.
And finally, there is not a lot of pro-duct to securitize yet. Mortgage rates were prohibitively high until recently due to the higher interest rate environment, said Mena.