Uruguay's Banco Hipotecario (BHU) appears at first glance to have the major ingredients of an MBS in the domestic market. A new trust law has been in place since December; Moody's Investors Service assigned first-time ratings to the bank on April 30; and the International Monetary Fund (IMF), according to one source, is pressing the bank to yank loans from its balance sheet as part of a restructuring.

The will, however, may not be there. "I question their commitment to securitize, even with the IMF behind this," said a source familiar with the bank. The fund is said to be pushing for a securitization of up to US$700 million in dollar- and local currency- denominated mortgages. One of the main problems, say skeptics, is the lax approach to enforcement. Loans that are delinquent for more than 60 days make up slightly over 60% of the bank's total pool. The bank has a history of turning a blind eye, a source said.

With a past due ratio as high as it is, it follows that the NPL ratio would be ugly as well. Reliable figures are hard to come by, but one source estimated they were in the upper teens.

The experience here is hardly encouraging. Even before the Uruguayan economy buckled under the weight of Argentina's meltdown, efforts to pull BHU into an MBS proved futile. ABN Amro is understood to have worked on a deal for the bank in 2001 and even that transaction - sized at a test case US$20 million to US$40 million - never saw the light of day. "They couldn't get the true sale, because that would crimp the ability of the bank to forgive debtors," a source said.

BHU originates 90% of all mortgages in Uruguay. Moody's rates the bank's foreign currency deposits Caa1'. Local currency deposits grade at Aaa.uy' on the national scale.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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