Development of the Secondary Mortgage Market in
Mexico: Current Situation and Perspectives.
March 2007
2
Contents
I.
The Mexican housing market
II.
Role of SHF in the Mexican housing market
III.
Importance of the Mortgage Insurance in the Mexican Market
IV.
Mortgage Backed Securities market (BORHI’s)
V.
Hipotecaria Total (HiTo)
VI.
Future challenges
3
Contents
I.
The Mexican housing market
II.
Role of SHF in the Mexican housing market
III.
Importance of the Mortgage Insurance in the Mexican Market
IV.
Mortgage Backed Securities market (BORHI’s)
V.
Hipotecaria Total (HiTo)
VI.
Future challenges
4
The housing sector in Mexico has experienced a great
increase over the last years.
One of the most important reasons of this increase is the growth of the mortgage
market.
Number of Mortgages Originated Yearly
Average annual growth rate
(1996 – 2005) = 9.77%
600 000
500 000
400 000
300 000
200 000
100 000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source:CONAFOVI
5
It is expected that between 2000 and 2030, the number of
households will grow approximately 83%.
Number of Homes in Mexico (millions)*
45
41.8
40
36.3
35
30
22.8
25
20
15
10
5
9.8
4.8
0
1940
1970
2000
2020 e/
2030 e/
* According to the definitive results of the II National Population and Housing Count, total number of
homes in 2005 ascended to 24.8 million
e/ = estimate.
Source:CONAPO
6
The household formation rate will present its highest levels
over the next 7 years
Official estimations of population establish that in 2005, 672 thousand new households
were formed nationwide. This figure will increase and reach its maximum in 2012, with
690 thousand new households.
Household Formation, 2004-2020
38
680
672
670
7112526
100+
years 0.07080475
7311538
36
90-94 years0.059901525
6185634
34
80-84 years0.049926548
5155585
4090650
70-74
years0.040722164
4205109
60-64 years0.031030246
3204288
50-54 years0.026106584
2695854
0.019492454
2012857
32
660
30
650
28
640
630
26
26.1
620
24
610
22
20
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
600
New Household
Total number of Household
6017268
5015255
3117071
Age Groups
690
690
Millions of Homes
Thousands of New Homes
700
Population by Age Groups, 2005
2622476
1958069
40-44 years
1496691
0.014899465
1538569
1048315
0.01043591
1077647
657011
0.006540503
675395
345154
0.003435986
354812
132325
0.001317287
136028
61145
0.000608695
30-34 years
20-24 years
10-14 years
0-4 years
17649
0
1
0.000175695
2 628563
18143
35-39 years
40-44 years
45-49 years
50-54 years
55-59 years
60-64 years
65-69 years
70-74 years
75-79 years
80-84 years
85-89 years
90-94 years
4
5
Source: Elaborated with information from Conapo
Source: INEGI
7.31
6,185,634.41
6.19
5,155,584.55
5.16
4,205,108.60
4.21
3,204,288.33
3.20
2,695,854.30
2.70
2,012,856.83
2.01
1,538,569.22
1.54
1,077,647.42
1.08
675,394.52
0.68
354,811.60
0.35
136,027.53
95-99 years
6
1
00+ years
Millions
of People
T o tal
7,311,538.33
7
8
62,855.87
18,142.83
Ages of
household
formation
0.14
9
100.06 11
0.02
12
7
This population dynamics represents a great challenge and
opportunity for the mortgage market
Based on very conservative assumptions about the economic growth and interest rates
evolution, SHF estimates show that the mortgage portfolio will grow from USD $79,600
million in 2006 to USD $338,300 million in 2020.
Mortgage Portfolio Amount, 2006-2020
400,000
350,000
Annual rate of compound growth : 10.1%
Million dollars
300,000
250,000
200,000
150,000
100,000
50,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
INFONAVIT, FOVISSSTE Y FONHAPO
SOFOLES & BANKS
*The projections of the mortgage portfolio are based on the potential estimated demand. An annual PIB growth rate of 3% is assumed
and a decrease over the years of the home deficit that in 2005 was 8.4 million homes.
Source: SHF estimations
8
The growth of the Mortgage Portfolio as a percentage of the
GDP would be important, even though, it would still be
located at an average level compared with the rest of the
world.
Mortgage Portfolio Amount / GDP of selected countries (%)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
39%
36%
10%
Source: FMI, World Economic Outlook September 2004; South Africa Central Bank, CMHC (Canada), SSKI (India), Komoco (Korea), GHB
(Thailand), China On-Line, SHF (Mexico), Michael Lea.
Data from 2001 for Korea, Thailand, Brazil, Poland, China, India and South Africa.
An annual growth in the PIB of 3% is assumed.
9
The previous projections do not consider the potential growth
from improvements in affordability.
Given the competition and the improvement of the economic environment, in 2006 a borrower
with 7 minimum wages of income could borrow a mortgage 16% higher in value than what he
could in 2000, and 35% higher in value if he uses the joint program with INFONAVIT (Cofinavit)
Attainable Housing per Program
35,000
30,380
30,000
Million USD
26,173
25,000
22,428
20,000
15,000
10,000
5,000
PROFIVI 2000
PROFIVI 2006
COFINANCING 2006
Borrower’s income:
7 MW
Payment Factor
11.6
Payment Factor
9.94
*Figures in pesos
Payment Factor
11.17
That scenario is conservative if you consider that for the first
time in many years, all the participants in the mortgage market
are growing at high rates.
Individual Balance per Participant
Constant Million USD
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
4,500
1994
1995
1996
FOVI/SHF
Exchange rate: 11 MXP/USD
1997
1998
Bank
1999
2000
2001
Sofols
2002
2003
2004
2005
Sin FOVI/SHF
10
11
To finance such volumes of credit it is necessary to have an
efficient market for mortgage backed securities.
Amount issued up to date BORHI's vs. CEDEVI's (million USD)
545
1,136
298
54
178
250
2003
2004
2005
142
260
BORHI's
CEDEVI's
2006
2007
12
Contents
I.
The Mexican housing market
II.
Role of SHF in the Mexican housing market
III.
Importance of the Mortgage Insurance in the Mexican Market
IV.
Mortgage Backed Securities market (BORHI’s)
V.
Hipotecaria Total (HiTo)
VI.
Future challenges
13
SHF mandate and activities
SHF was created in 2001 as a government financial institution oriented to foster the
development of the primary and secondary mortgage markets.
Until 2013, SHF will count with the 100% guarantee from the Federal Government.
After this moment, SHF must be self sufficient.
Today it serves as a mortgage bank and a financial guarantor.
•
SHF grants long term financing to financial intermediaries and covers their
interest rate risk. SHF does not lend directly to individuals.
•
SHF offers mortgage insurance and financial guaranties and a swap that
allows borrowers to pay in terms of minimum wages versus UDIS
denominated loans.
14
SHF mandate and activities (Cont…)
•
According to SHF´s Law, after 2009 SHF will not be able to grant finance. Hence, it
is necessary to develop alternative mechanisms of housing financing.
•
SHF considers the securitization of mortgages as the most efficient mechanism of
house financing; and in accordance with this idea, it is focusing on accomplishing to
finance most of the mortgages in Mexico through it.
SHF started operations in 2002, overtaking the activities of
FOVI and has the capacity to fund in the markets.
Local capital
and
international
derivatives
markets
Central Bank
loans
World Bank &
IADB
SHF hedges market and prepayment risk
through debt and derivatives markets
MI is offered to prepare
loans for securitization
Mortgage Insurance
SOFOLES
MORTGAGE
LENDING
SHF funds SOFOLES on a matched funds basis,
absorbing market and prepayment risk
15
16
SHF’s main challenge is to develop an efficient market for
mortgage-backed securities (MBS) through its role as guarantor
and liquidity provider.
SPV
Financial
Intermediaries
• Banks
• Sofoles
Mortgage
Portfolios
$
L
O
A
N
S
MBS
Capital Markets
MBS
K
Mortgage
Insurance
$
Partial Credit
Guarantees
17
SHF has been actively seeking the entrance of private providers
of guarantees. The end-game is a market based on private
providers of financial solutions.
SPV
Financial
Intermediaries
• Banks
• Sofols
Mortgage
Portfolios
$
L
O
A
N
S
MBS
Capital Markets
MBS
K
Mortgage
Insurance
$
Financial
Guarantee
Insurance
18
The same effect happened in 2004 for individual loans. The
acquisition of Sofoles by Banks and securitization have been a
source of diversification for Sofols funding
Mortgage Portfolio Administered by Sofoles
Equivalent in Million Dollars
16 000
14 000
12 000
10 000
8 000
6 000
4 000
2 000
0
1995
1996
1997
1998
1999
SHF & FOVI Funding
2000
2001
2002
Bank Funding
2003
2004
2005
2006e/
Securitizations
19
Contents
I.
The Mexican housing market
II.
Role of SHF in the Mexican housing market
III.
Importance of the Mortgage Insurance in the Mexican
Market
IV.
Mortgage Backed Securities market (BORHI’s)
V.
Hipotecaria Total (HiTo)
VI.
Future challenges
20
The securitization model in Mexico in 2003:
=
Financial Guaranty
Insurance Company
Mortgage Insurance
Company
PREMIUM
MORTGAGE
INSURANCE (First loss
up to 25%)
PREMIUM
Mortgage + Insurance
25%
SOFOL or BANK
$
Mortgage
Financial Guaranty
Partial or Total Insurance
PRIVATE
ADMINISTRATION
TRUST
BORHIs with repayment of
principal and interest,
supported by structure and
guaranties
$
BORROWER
Depends on the issuer´s
preference,
but
the
mortgage insurance is
required unless there is a
Financial Guaranty of a
100%.
Mortgage Packages
structured to this level. The
Trust acquires the Mortgages.
$
Securities
Market
21
SHF has participated actively in the securitization model.
SHF does not buy individual credits to pack and securitize them, and also will not offer
100% coverage with the GPO. Instead, SHF has been supporting the securitization of
individual credits in the following way:
 Offering a Mortgage Insurance of up to 35% on the first loss to the Mortgages.
 Granting the swap UDIS - Minimum Wages to isolate the currency risk in the
structure.
 Granting Partial Financial Guaranties to structures that comply with the minimum
issuance criteria.
 Supporting the development of the BORHIs market through the Market Maker
figure and with an active presence on the secondary market.
Promoting the creation of an MI market in Mexico
Banks, Sofols
and Trusts
issuers of
BORHIS
1.
2.
3.
MI Companies
MI Reinsurance
SHF
International
MI
Companies
Private MI
Companies
AHF
Short Term (2004 - 2006): SHF offers an MI coverage, looking for reinsurance with
international specialized companies.
Medium Term (2006 - 2013): Private Insurance companies offer medium and
residential coverage. SHF takes risks with the low income sector, and with some other
risk not covered by the private sector.
Long Term (2013+): Private Insurance companies offer coverage in all segments,
SHF offers reinsurance for riskd not accepted by private entities.
22
23
Contents
I.
The Mexican housing market
II.
Role of SHF in the Mexican housing market
III.
Importance of the Mortgage Insurance in the Mexican Market
IV.
Mortgage Backed Securities market (BORHI’s)
V.
Hipotecaria Total (HiTo)
VI.
Future challenges
Up to day there are 27 BORHIs issuances, for a total amount of
USD$ 2,478 million. And also, two transactions which are
innovative for this market.
Issuance
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Su Casita/GMAC I BRHCGCB 03U
Su Casita/GMAC II BRHCGCB 04U
GMAC I MXMACCB 04U
Metrofinanciera METROCB 04U
Metrofinanciera II METROCB 05U
GMAC II MXMACCB 05U
Metrofinanciera III MFCB 05U
Su Casita I BRHSCCB 05U
GMAC III MXMACCB 052U
GMAC IV MXMACCB 06U
Su Casita II BRHSCCB 06 P
Crédito y Casa I CREYCCB-06U
Metrofinanciera IV METROCB 06U
Su Casita III BRHSCCB 06U Serie "A"
Su Casita III BRHSCCB 06-2U Serie "B"
Su Casita IV BRHSCCB 063U Serie "A"
Su Casita IV BRHSCCB 06-4U Serie "B"
Su Casita V BRHSCCB 065U Serie "A"
Su Casita V BRHSCCB 06-6U Serie "B"
ING Comercial América HICOACB 06U Serie "A"
ING Comercial América HICOACB 06-2U Serie "B"
FINCASA FCASACB-06U
GMAC V MXMACFW 06U Serie "A"
GMAC V MXMACFW 062U Serie "B"
Su Casita I BRHSCCB 06-2 Serie "A" Pesos
Su Casita I BRHSCCB 06-3 Serie "B" Pesos
Patrimonio I PATRICB 06U
Crédito y Casa I CREYCCB-06U Serie "A"
Crédito y Casa I CREYCCB-06U Serie "B"
Banorte I BNORCB-06 Serie "A" Pesos
Banorte I BNORCB-062 Serie "B" Pesos
Su Casita II BRHSCCB 07 Serie "A" Pesos
Su Casita II BRHSCCB 07 2 Serie "B" Pesos
Crédito y Casa I (Reap) CREYCB-06U Serie "A"
Crédito y Casa I (Reap) CREYCB-062U Serie "B"
GMAC V MXMACFW 07U Serie "A"
GMAC V MXMACFW 072U Serie "B"
HSBC I HSBCCB-07 Serie "A" Pesos
HSBC I HSBCCB-07 Serie "B" Pesos
Total
* Bursatilización en Pesos
Issuance
1 Su Casita Cross border USD Serie "A" USD
Su Casita Cross border USD Serie "B" USD
2 Deutsche Bank DBCB-07U Serie "A-1"
Deutsche Bank DBCB-072U Serie "A-2"
Deutsche Bank DBCB-073U Serie "AIO"
USD
54,142,182
106,333,010
97,512,124
46,042,433
45,971,738
45,345,150
44,910,141
62,590,786
61,077,130
47,839,161
47,700,518
49,265,758
44,833,749
90,073,207
10,120,557
84,219,778
9,462,888
65,380,321
7,346,098
56,608,379
6,396,413
45,906,681
60,884,337
5,323,209
56,525,100
7,429,009
90,289,091
147,775,304
16,602,616
180,489,273
5,640,282
68,468,636
9,411,491
57,138,220
6,575,241
81,701,723
5,741,215
208,888,100
20,409,091
2,158,370,141
USD
239,750,000
22,654,545
22,420,128
33,630,192
1,938,596
320,393,461
Yield
Date of issuance
5.00%
6.35%
6.43%
6.75%
6.50%
6.10%
5.91%
5.39%
5.57%
5.60%
10.15% *
5.74%
6.20%
6.10%
7.85%
5.45%
7.15%
5.00%
6.70%
5.00%
6.40%
5.10%
4.40%
6.60%
8.60%
10.42%
4.29%
4.78%
6.45%
8.27%
9.45%
8.81%
10.65%
4.78%
6.45%
4.08%
6.55%
8.24%
9.58%
05-Dic-03
19-Ago-04
25-Nov-04
16-Dic-04
01-Jun-05
04-Ago-05
18-Ago-05
30-Sep-05
20-Oct-05
30-Mzo-06
17-Abr-06
18-May-06
02-Jun-06
09-Jun-06
09-Jun-06
04-Ago-06
04-Ago-06
31-Ago-06
31-Ago-06
22-Sep-06
22-Sep-06
12-Oct-06
26-Oct-06
26-Oct-06
15-Nov-06
15-Nov-06
04-Dic-06
13-Dic-06
13-Dic-06
18-Dic-06
18-Dic-06
26-Ene-07
26-Ene-07
09-Mar-07
09-Mar-07
23-Mar-07
23-Mar-07
30-Mzo-06
30-Mzo-06
11
TC=
Yield
0.00%
0.00%
4.05%
4.58%
6.00%
Date of issuance
0
0
27-Mzo-06
27-Mzo-06
27-Mzo-06
24
As of March 2007, the total BORHIS outstanding was around USD
$1,842 million
BORHIS Issued Amount (million USD)
and number of mortgages securitized
$1,700
$1,842
$1,800
65,000
55,000
$1,500
45,000
$1,200
35,000
$564
$900
25,000
$304
$600
15,000
$54
$300
5,000
$-
-5,000
2003
2004
2005
Cummulated Issued Amount
*Exchange rate = 11 MXP/USD.
2006
2007
Mortgages securitized
25
The increase on the number of issuers was, of course, an
important factor to increase the issued amount
26
Banorte
Crédito y Casa
Patrimonio
ING
FINCASA
GMAC (Patrimonio)
GMAC (Crédito y
Casa)
GMAC (Patrimonio)
GMAC (Crédito y
Casa)
Metrofinanciera
Hip. Nacional
Metrofinanciera
Hip. Nacional
Metrofinanciera
Hip. Nacional
GMAC
Su Casita
GMAC
Su Casita
GMAC
Su Casita
GMAC
Su Casita
2003
2004
2005
2006
The return over equity for the Sofols which securitize is relatively
high
27
LOAN SECURITIZATION IN PESOS, FIXED RATE, 20 YEAR TERM
25%
First loss
Mortgage Insurance
Mortgages
Portfolio
10%
Financial
Guarantee
97%
Senior
Bond
3%
Subordinated
Bond
Rates in pesos
+
15.50%
Average rate
-
1.25%
Servicing fee
-
1.25%
Mortgage Ins. & Fin. Guar.
-
1.25%
Life & damage Insurance +
structure costs
-
8.94%
Funding rate BORHIs
=
2.81%
Excess rate
Though Borhis are a relatively new product in the mexican
market, the demand for these type of Bonds has consolidated….
6
5.1
5.17
4.83
Demand vs. Supply Ratio
5
4.78
4.58
4.25
4.13
4
3.65
3.5
3.3
3.00
3.12
3.5
3.13 3.2
2.93
2.88
3
2.43
2.31
2.35
2.10 2.13
2.1
1.8
2
1.20
1
/G
TA
SU
CA
AC
M
SI
SU
CA
1
/G
TA
AC
M
SI
M
G
AC
-H
L
NA
2
.
C
NA
IO
M
R
ET
O
I
M
R
ET
G
M
O
AC
II
O
NI
O
IM
TR
PA
M
R
ET
O
III
SU
CA
T
SI
A
1
M
G
AC
1
M
AC
2
G
SU
CA
T
SI
A
1
O
IT
ED
CR
Y
CA
SA
1
O
M
IV
R
ET
SU
CA
T
SI
A
3
SU
CA
T
SI
A
4
T
SI
A
5
AL
CI
ER
M
CO
SU
G
CA
CA
AM
IN
Issuance
I
ER
N
FI
SA
CA
M
G
AC
a
Su
Ca
sit
I
tri
Pa
on
m
io
Cr
I
ito
éd
y
Ca
sa
n
Ba
te
or
Cr
a
Su
ito
éd
Ca
y
sit
sa
Ca
I
(r
pe
ea
ra
r tu
)
28
…. and spreads versus government securities have shown a stable
trend
Spread = BORHIS* – “Mexican Government Real Rate Benchmark”
(Dic-2003 – YTD)
150
Avg. = 104 BP
125
100
75
BORHIS* - UDIBONOS**
Dic-06
Oct-06
Ago-06
Jun-06
Abr-06
Feb-06
Dic-05
Oct-05
Ago-05
Jun-05
Abr-05
Feb-05
Dic-04
Oct-04
Ago-04
Jun-04
Abr-04
Feb-04
Dic-03
50
*Weighted Average YTM (calculated, at each time, with the outstanding amount of each issue). Source: VALMER; Mexican
Price Vendor.
**Government Real Rate Benchmark (with similar duration to that of the BORHIS).
One of the main reasons why BORHIS have been well demanded is the existence of
a liquid secondary market for these securities.
29
30
BORHIS offer very attractive yields to Foreign Investors ….
YTM: BORHIS* vs. “Mexican Government Real Rate Benchmark”, “TIP’s + EMBI+”, TIP’s
(Dic-2003 – YTD)
6.0%
5.0%
4.57%
4.0%
3.49%
3.36%
3.0%
2.0%
BORHIS*
UDIBONOS**
TIP's 20 yr + EMBI+
TIP's 20 yr
TIP's 10 yr + EMBI+
TIP's 10 yr
Dic-06
Oct-06
Ago-06
Jun-06
Abr-06
Feb-06
Dic-05
Oct-05
Ago-05
Jun-05
Abr-05
Feb-05
Dic-04
Oct-04
Ago-04
Jun-04
Abr-04
Feb-04
Dic-03
1.0%
2.35%
*Weighted Average YTM (calculated, at each time, with the outstanding amount of each issue). Source: VALMER; Mexican
Price Vendor.
**Government Real Rate Benchmark (with similar duration to that of the BORHIS).
TIP’s = Treasury Inflation Protected Bonds; EMBI+ = Emerging Markets Bond Index (Mexico).
31
…. sovereign risk adjusted and inflation protected
Spread = BORHIS – “Mexican Government Real Rate Benchmark” and “TIP’s + EMBI+”
(Dic-2003 – YTD)
325
300
275
250
225
200
175
150
125
100
75
50
Avg. = 201 BP
BORHIS - (TIP's 10 yr + EMBI+)
BORHIS - (TIP's 20 yr + EMBI+)
Dic-06
Oct-06
Ago-06
Jun-06
Abr-06
Feb-06
Dic-05
Oct-05
Ago-05
Jun-05
Abr-05
Feb-05
Dic-04
Oct-04
Ago-04
Jun-04
Abr-04
Feb-04
Dic-03
Avg. = 104 BP
BORHIS* - UDIBONOS**
The average spread between the “GNMA 30 Yr.” and the “10 Yr. UST” has been of
90 Basis Points (2004-YTD).
SHF created the Market Maker figure in order to promote the
Borhis’ secondary market
There are now 10 Market Makers who have participated with competitive positions
since the last 12 Borhis’ auctions, and who operate actively in the secondary market
the 23 outstanding issuances.
32
33
Contents
I.
The Mexican housing market
II.
Role of SHF in the Mexican housing market
III.
Importance of the Mortgage Insurance in the Mexican Market
IV.
Mortgage Backed Securities market (BORHI’s)
V.
Hipotecaria Total (HiTo)
VI.
Future challenges
34
In order to develop in Mexico a securitization market there
must be 4 key elements
The securitization process of mortgages (BORHIs) is recent, its development depends on
the following key elements:
1. Portfolios of credit that fulfil certain minimal criteria in their origination and
administration (solid and trustable mortgages).
Currently the issuances in the market are backed by portfolios that:

• LTV <= 65%
• Housing credit insurance or GPI
• Valid credit
•
Fulfill a common standard in terms of strict
mechanisms of origination (eligibility criteria) and
administration, integration of the credit file, reports of
the information, etc.
•
Were reviewed by a third party (insurance credit
housing providers or financial guarantees) that will face
loses in case of defaulting).
• Complete filing (certificates of property,
appraisal, etc.)
35
In order to develop in Mexico a securitization market there
must be 4 key elements
2. Credit enhancers with value and trustworthy included in the market:
Currently the structures have diverse credit enhancers that strengthen them when possible
defaults from debtors may occur:

•
Mortgage Credit Insurance or GPI
•
Financial Guarantees (GPO) or Partial Credit Guarantees (PCG).
•
100% coverage of the full-wrap portfolios
 SHF has worked together with diverse financial intermediaries and multinational organisms to
participate as guarantors in these structures. The answer has been positive, since currently
the IFC and FMO participate in PCGs, United and Genworth in GPI through the re-insurance
figure, and this year they worked directly with Sofols and Banks.
 AMBAC gave its first coverage of multinational AAA to the 100%.
 We are working with the 3 credit rating agencies in the optimization of this credit enhancers
that may permit to optimize the structures.
36
In order to develop in Mexico a securitization market there
must be 4 key elements (Cont…)
3. The possibility of taking in firm of long term securities in behalf of the investors
The investors have shown a greater participation both in the primary and the
secondary market of BORHI´s in the way in which the issuances have been done for
many reasons:
6.00
5.17
4.83
5.00
4.58
4.25
Relación Demanda-Oferta
4.13
4.00
3.65
3.5
3.3
3.00
3.12
3.5
3.13 3.2
2.93
2.88
3.00
2.43
2.31
2.35
2.10 2.13
2.1
1.8
2.00
a) A market of national and foreign investors has been
developed, in its majority institutional (Siefores,
Insurance companies) that have manifest appetite
for securities in a long term.
1.20
1.00
-
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Clave de Pizarra
Demand of BORHIS

b) The curves of the government are longer and are a
reference that facilitates the development of the long
term debt market that includes BORHI´s.
37
In order to develop in Mexico a securitization market there
must be 4 key elements (Cont…)
4. Efficient mechanisms of portfolio adjoin that permits to give certainty to the
originators/administrators of the mortgage credits about:

a) The existence of a source of liquidity and continuous and safe funding
trough the capital markets.
b) A well known interest rate to discharge their credits from their balance, and to
permit to eliminate the market risk that is currently given to between the credit
origination and its securitization (It takes about 28 months in average between
these two events)
SHF and diverse financial intermediaries have focused and been able to develop the key
elements, nevertheless it hasn't been possible to advance in the following last element:
Efficient mechanisms of portfolio adjoin. It is one of the reasons why the small and middle
size Sofols have not shared in the securitization.
38
When there are no adjoin of efficient mechanisms, the
current securitization model last 28 months in average
Current
Model
The process is long, about 35 months
Government rate + X bp
Debtor:
Requests
credit
Sofol
Requires
Funding
Gives Funding
Sofol
Sofol
Gives Credit
Accumulates
mortgages
Securitization
If the market conditions
permit it
39
To promote the use of a vehicle that may guarantee the
liquidity of the originators and eliminates the market risk
between origination and securitization, a solution called HiTo
has been developing
• In 2001 an agreement of “Partnership for prosperity” was singed
between the Governments of Mexico and The United States.
• The United States Department of the Treasury requested Soros to look
for the best solution to finance the great housing need of Mexico.
• SOROS & VP agreed in June 2003 to establish an Institution focused in
the aim to offer to Mexico the Danish Model of Mortgages.
With that purpose, SHF has kept a close
relationship with Danish mortgage banks, the
Danish Central Depository Institution (VP), and
Soros Equity Fund.
After a continuous interaction of the Danish institutions with their Mexican
counterparts (INDEVAL, SHF and some Sofols), an adaptation of their
business model has been defined for Mexico by creating a company
called Hipotecaria Total (HiTo)
The Sofols participation in HiTo, will be very simple
Hito Mexico
SHF with SOROS
and
VPX,
are
working
in
the
implementation of
the
infrastructure
that supports the
securitization
systems of HiTo.
Hito will adapt to Mexico the
systems
that
support
the
operation in Denmark, which is
well known for the foreign
investors
and
the
rating
agencies.
Reduce
the
funding rate and
optimize credit
enhancers.
The idea is that with simple interfaces and sending similar
lay-outs to those sent currently to SHF, Sofols could access
the Capital Markets continuously to fund their mortgages at
a low cost and anytime they need it.
From November 2006, HiTo is a company focused in
the Securitization services, with systems connected
with INDEVAL and the banking systems that Sofols
currently uses, in a very automated way (Straight
Through Process, STP).
40
41
Conceptually the technological solution is simple
Banking System
•
•
•
•
Client assistance
Credit score
Client management
Administration of
credits
• Payment
administration
• Building appraisal
• Prices and charges of
commissions and
services
• Account management
FundingXpert
Funcionality
FundingXpert
“VPX Bond
Management
Interface”
• Investors
• Payments
• Administration
Indeval
• Clearing
• Operations capture
• Market information
• Investors and issuers
account administration
VPX Bond Management System
FundingXpert
interface
• Investors
• Payments
• Administration
Funcionality VPX
42
Operation of HiTo in Mexico
Small
Small
Sofole
Sofol
Medium
Sofol
Small
Bank
Large Bank
or Sofol
• HiTo will be an open system
to any interested participant
in securitizing their mortgage
portfolio.
HiTo (VP Mexico)
• The participants in the
Market could issue securities
with their own brand (eg: Su
Casita, Metrofinanciera,
GMAC, etc.) or using a
Multisofol brand (multisofol
issuance).
Abanks +
FundingXpert
VPX
Own
Trust for
Brand
independent
Trust
Bank Brand
Multisofol
HiTo
Trust
Trust
Securities
HiTo
Securities
Sofol X
Indeval
Securities
Sofol Y
Securities
Sofol Z
• In both cases, the
subordinated piece will be
kept by the originating Sofol
43
Conclusion
 By securitizing through a vehicule like HiTo, the originators/administrators will obtain
very important benefits:
 The existence of a liquidity source and continuous and safe anchorage through
capital markets.
 A known interest rate to unload its credits off the balance, and that allows to
eliminate the risk market that at the moment occurs between the origination of the
mortgage and their securitization (it takes approximately 28 months in average
between these two events).
 The standardization does not imply rigidity in the type of mortgage since today the
danish model supports several types: fixed rate, variable rate, with caps, etc.
These benefits allow the Sofol to be in conditions to offer a highly competitive
mortgage product and increase their volume of mortgage originations
44
Contents
I.
The Mexican housing market
II.
Role of SHF in the Mexican housing market
III.
Importance of the Mortgage Insurance in the Mexican Market
IV.
Mortgage Backed Securities market (BORHI’s)
V.
Hipotecaria Total (HiTo)
VI.
Future challenges
45
Challenges for the Borhis market development:
•
To build a market where investors, mainly local and foreign institutional investors,
could feel comfortable regarding transparency and liquidity of the securities.
•
To develop entities or vehicles specialized in the purchase of mortgage loans, Borhis
issuance and investment on tranches of the structures.
•
To assure the continuity of the business model, supporting liquidity during all the loan
origination process.
•
To maintain the loan portfolio growth, while keeping the same credit quality.
•
To develop a more efficient and deeper secondary market in order to satisfy the
potential credit demand during the next years, and to maintain the Sofols’
competitiveness against Banks.
•
To transfer all benefits achieved in housing finance in more benefits to the borrowers,
in terms of lower rates, down payments and monthly payments.
46
Development of the Secondary Mortgage Market in
Mexico: Current Situation and Perspectives.
March, 2007