The Mexican mortgage development bank Sociedad Hipotecaria Federal has shelved plans to open a financial guarantee company because the local market for credit enhancement products like mezzanine debt has developed to the point where home lenders are no longer buying the bank's guarantees.
"With all the liquidity in the market, mezzanine bonds started to place at spreads that were cheaper than the partial financial guarantees we offered. A lot cheaper," SHF chief executive Guillermo Babatz said in an interview.
SHF was created in 2001 with a mandate to provide mortgage insurance, financial guarantees, and long-term funding to special-purpose home finance companies, or sofoles.
Demand for SHF's partial financial guarantees plummeted last year because of competition from full-wrap financial guarantees, which provide a 100% guarantee, sold by insurance companies such as Ambac Financial Group and MBIA Inc. and mezzanine debt, a type of credit enhancement similar to subordinated bonds.
Even so, SHF is weighing whether to offer mezzanine bonds itself as a kind of provider of last resort "if the market loses the liquidity it has had in the last few months and pulls back," Mr. Babatz said.
