Argentina's secondary mortgage market could experience a considerable boost next year when the country's largest bank, Banco Hipotecario (BHN), the International Financial Corp. (IFC) and local real-estate developer IRSA team up to create Corporacion Financiera Hipotecaria (CFH), a secondary mortgage institution that will buy mortgage loans and package them into mortgage-backed securities.
The IFC will put up 20% of the necessary funds for the creation of the company, while BHN and IRSA will fund the remaining 80%. Corporacion Financiera Hipotecaria will get underway with $50 million and will be able to hold more than $400 million in assets.
The company plans to purchase mortgage loans that yield an average of 11% to 12% and sell the paper backed by them at yields ranging from 7% to 8% to domestic and foreign institutional investors.
"We expect a very positive response from all the players in the market," said Marcelo Icikson, director of capital markets at BHN. "Several banks have expressed interest in selling mortgages to the new company in order to acquire funding for the origination of new mortgages. In addition, local pension funds indicated that they would consider participating in mortgage securitization deals."
Icikson said that CFH will waste no time in tapping international investors. "Currently, local pension funds are demanding very higher interest rates so we are thinking about accessing the international markets first."
BHN has sold several asset-backed bonds in the past, but fluctuations in international capital markets have made it difficult to sustain this strategy. But Icikson believes that the IFC's involvement will will ensure a more stable source of financing for CFH.
"The new company is geared towards the development of the growing local mortgage market," explained Icikson. "Following the stabilization of the economy, the housing sector began to expand and we think that Corporacion Financiera Hipotecaria will enable us to take advantage of what this market has to offer."
Relative to many countries, Argentina's housing finance market is very small. By mid-1998 the mortgage debt outstanding to GDP was 2.65%. Prior to 1991 the mortgage market was virtually non-existent, as inflation eroded real balances and led to a lack of long-term housing funds. Consequently, homes were purchased with cash and short-term personal loans.
The Argentine mortgage market is dominated by BHN, which over the past five years has funded 40% of all residential mortgages. The bank originally started as a government housing bank active in both the construction and financing of residential dwellings, but its charter was changed in 1990 to that of a second tier housing bank geared toward purchasing mortgages from banks on recourse and issuing bonds.
BHN was privatized early this year and is now controlled by a group of local investors in partnership with U.S. financier George Soros. The same group also operates IRSA, a listed property developer.
The combination of these strong players, the IFC and a tailor-made securitization law bodes well for the development of Argentina's secondary mortgage market. "The IFC board approved the plans for the creation of Corporacion Financiera Hipotecaria," said Icikson. "We are now waiting for the approval of Argentina's central bank and expect to have the company up and running by the first quarter of 2000."