It's news to no one who follows Mexican ABS that while credit markets have soured across the board, they've grown especially leery of deals collateralizing assets originated by non-bank housing finance companies called Sofols.

With steep short-term maturities due, and slower amortizations on the construction loan side, a number of Sofols are struggling. And they're finding they have to pay heavy spreads to place deals backed by mortgages and construction loans.

But a development last week showed that not everyone's grim over Mexico's housing sector.

Spanish savings bank Caja de Ahorros y Monte de Piedad de Madrid - known as Caja Madrid - announced that it had bought the remaining 60% of Su Casita that it didn't already own. The price tag was $342 million. In a release, the Spanish bank characterized the deal's parties as "both leaders in the mortgage market of their respective countries, which coincide in their profitable and solvent strategy."

For Mexico's housing sector, this is a big deal. Su Casita had total assets of Ps32 billion ($3.2 billion) at the end of Q108, about 18% of the Sofol market. Roughly 82% of the originator's book is in mortgages, and the other 18% is in bridge loans to construction companies.

The question now is whether Su Casita's funding strategy will change. Sofols had been a main mover of the MBS market, and while the market's in the doldrums these days, Su Casita management has always maintained their long-term commitment to ABS funding.

In 2004, BBVA Bancomer purchased Sofol Hipotecaria Nacional, which was by far the largest Sofol back then. The move pulled the originator out of the securitization arena. But Bancomer ended up coming back to issue more than Ps2.5 billion ($250 million) in a single deal last December and follow up with a second deal in March, and now has a third in the pipeline.

One source said the Su Casita situation will be different given that Bancomer was already operating in the country, and Caja Madrid will be gaining a foothold only after taking over Su Casita.

Su Casita officials didn't return a request for comment.

In its release, Caja Madrid said that the business strategy and management team at Su Casita will remain intact, but we'll have to see. The Spanish bank also made clear its intention to push Su Casita into new realms of banking.

Caja Madrid officials didn't return a request for comment as of press time.

Caja Madrid will reportedly execute this purchase via Cibeles, a financial corporation that it wants to float on the stock exchange in November.

We'll also have to see how that works out, with equities in the tank. Analysts have also warned that Caja Madrid's heavy exposure to construction and real estate companies will be a drain on profitability. The bank had a Ä1 billion ($1.57 billion) exposure to real estate developer Martinsa-Fadesa, which filed for creditor protection earlier this month. And this may not be the last of the bank's clients to topple.

But let's not take away from what could turn out to be a nice leg up for Su Casita.

The acquisition news prompted Standard & Poor's and Fitch Ratings to put their Su Casita ratings on positive watches.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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