Banks that are leery of lending in Mexico may have hit upon a safer alternative - financing U.S. citizens' vacation homes in that country.
Their plans, though, must still clear a big hurdle: winning a favorable rating on the loans once they are securitized.
A number of mortgage lenders are said to be interested in dipping their toes cautiously over the border. They are looking at a market niche that could ultimately produce significant business, industry experts believe.
"The opportunity appears to be there," said an executive at a bank that is preparing to test the market.
The executive, who asked that his name not be used, said that aside from creating loans the vacation-home program would give his institution a good chance to learn about Mexico and its building activities.
But the executive added that his institution wants to do a bit more legwork before making any commitment. "This could be a huge mistake," he said. "The entry costs are quite high in terms of due diligence."
His bank is not alone in its explorations. A number of lenders are "very open to the idea" of backing second homes in Mexico for U.S. citizens, said Diane M. Audino, director of structured finance ratings at Standard & Poor's Corp.
The lenders reason that there is no other financing source for these consumers, making demand for the loans quite substantial, Ms. Audino said. These mortgage banks also reason that lending to U.S. residents is much less risky than dealing directly with Mexican citizens and developers, she said.
S&P got separate visits this summer from a number of institutions wanting to discuss their hopes to lend against properties in Mexico.
Ms. Audino declined to name the institutions, but she did say the visitors included several big lenders based on the West Coast.
Representatives at a number of California-based mortgage lenders said their companies were not involved.
The companies that called on S&P and other credit rating agencies were interested in what kind of a rating they would get when they securitize the vacation-home loans. Banks use securitization to get the loans off their books, but anything short of a top-quality stamp can stymie such efforts.
"One of the main hurdles is that investors desire an investment-grade rating," Ms. Audino said.
She indicated that S&P was hardly jumping to put a high rating on the proposed securities. The peso's devaluation, continued inflation, and a lack of clear economic direction from the Mexican government are all drawbacks, S&P representatives said.
Problems also exist on this side of the border. U.S. borrowers would probably be much more inclined to walk away from their vacation homes than their primary residences if they get into financial difficulty, said Tariq Rafique, director of S&P's structured finance ratings.
Indeed, the thought of doing business in Mexico has crossed the minds of bank executives nationwide, but they step back when considering the range of possible problems.
Even common obligations, like liens, can become uncertain in a foreign country, observers said.
"We'd have to know more about it" before making any kind of commitment in Mexico, said Larry Byrne, first vice president at Great Western Mortgage Corp., Chatsworth, Calif.