Mexico Mortgage Market

The development of the mortgage industry in Mexico began in the early 1990s. Generally before that period mortgage lenders were the mortgage banks.

The development of the mortgage industry in Mexico began in the early 1990s. Generally before that period mortgage lenders were the mortgage banks.

Due to the Skewed income distribution the government has played a major role in the Mortgage Market.

Since the establishment of the first public housing finance institution BANOBRAS in 1993 the governmentintroduced housing pension funds (the INFONAVIT and FOVISSSTE for the privateand public sector workers), a central bank rediscounting facility (the FOVI),and an un budget subsidy program (FONHAPO) for the low-income informal market.

The government imposed a mandatory lending ratio on commercial private banks in1960s. Such type of controls in a high inflationary environment led to the demiseof mortgage bond market by late 1970s.

 

Inflationary Situation and Housing Finance In Mexico

Housing finance in the developing countries is some howproblematic because there are macro economic fluctuations and lack of legal,technological and regulatory frameworks.

In the year 1984 the central bank of Mexico made a use ofthe dual-index mortgage (DIM) system as a means to improve the borroweraffordability without sacrificing lender profitability.

The introduction of theDIM has been cited as a major success story in developing country housingfinance as it facilitates the extension of affordable finance for housingwithout expensive interest rate subsidies.

Mexican Housing Experience

• Compulsory use of the fixed-rate mortgages in the inflationary situation is a recipe for disaster.
• In case of long term loans in an inflationary situation, DIM has a greater significance.
• Certain problems arise with regards to the DIM in the private sector settings.

In case of Mexico the setting of DIM is very sensitive.

• The effectiveness of DIM depends upon existence of reliable wage or income measures.

 

However it is clear from the experience that bothpolicy makers and financial executives need an understanding of thecharacteristics of the mortgages provided to the consumers and how theyinteract with the funding sources of the institution in different macroeconomic environments.

Mortgage Backed Securitization in Mexico

The housing goal to build 750,000 houses ayear by 2006 and mortgage-backed securitization is a good financial toolfor its accomplishment. It is just in its infancy stage. There is the presenceof the securitization of assets like oil sales receivables; toll roadsreceivables, credit card receivables, and mining export receivables.

The securitizationhad faced the following problems in the initial periods that are as follows,

Trusts could not issue debts.There was not a system of security interests asdeveloped in United States.There was anold bankruptcy law that was not designed to deal complex multinationalcorporations and sophisticated commercial financing.

For the above impediments in the Mexican mortgage market, Mexican securitizationtransactions typically set up through the United States, using American banks,currency denominated in dollars, the American securities market.

Still today there is no speciallaws with regards to the securitization transactions as in the case ofArgentina and others.

The laws amended forsecuritization in Mexico are as follows.

• The Law of Banking Institutions.
• The Civil Code for the Federal District of Mexico.
• The Commerce Code.
• The General Law of Negotiable Instruments and Credit Transactions.
• The stock market law.

The recent lawsto facilitate securitization in Mexico are as followsThe Organic Law of the Federal Mortgage Agency and itsregulatory rules.The Transparency and promotion law for competition inthe secured credit.

Since theyear 1994 a large number of changes are being made to develop a mortgage backedsecurity market in Mexico. The government has stepped forward to reduce thedeficit in the housing sector.