Mexican President Pena Nieto's affordable housing policies may have negative consequences for existing private-sector RMBS, according to Fitch Ratings.
The agency noted that this segment has already been hit with an increase in bank-owned property (REOs) as foreclosures have risen and servicers have been slow to dispose of existing inventories.
President Pena Nieto's strategy on housing affordability has focused on three main areas: better coordination on housing policy, intelligent and sustainable urban development processes, and growth in housing supply to cope with demand while improving quality of life.
Many of these polices are designed to promote housing projects -- either vertically or horizontally constructed -- closer to city centers.
Fitch believes the policy changes could put further pressure on future sales of these REOs as prospective new home buyers are lured closer to urban centers by potential incentives. It said RMBS servicers will continue to compete to unload these nonperforming assets that in many cases are concentrated in some of the outlying areas within Mexico.
“With legal and maintenance costs rising and the sales cycle lengthening for this segment, we may see additional pressure on recovery rates that have already decreased over the past three years from 70% to 50% on Fitch-rated RMBS transactions,” it noted in a report published today.
“It remains unclear how these policies will impact existing housing supply in the short and medium term, as many major homebuilders continue to face financial difficulties that may curb supply, providing potential pricing support.”