Following almost a year of planning and structuring, Guatemala's state-owned mortgage guarantor, FHA, closed the country's first mortgage-backed securitization.

The transaction, which totaled 1.1 million Guatemalan Quetzal (approximately $140,000) and featured a 12.5% coupon, was managed by Grainai & Townson Corp. The notes were backed by mortgages that carry FHA's guarantee and were sold to local pension funds and institutional investors.

"We would like to invest a total of $2.5 million in the purchase of mortgages with FHA insurance that would then be securitized and sold in the secondary market," said Ruy Llarena, manager at FHA in Guatemala City.

The FHA guarantee is a limited warranty of the Guatemalan government that offers tax and other incentives to local banks. "We believe that securitization will inject much needed liquidity into the mortgage market, benefiting all players in the long run," Llarena said.

In the short term, however, the prospects for local mortgage securitizations are restricted by a lack of liquidity in the market. "The lack of liquidity is driving the interest rates of financial instruments really high. The central bank, for example, is offering bonds that feature a 23% coupon," explained Llarena. "Given the middle and lower-income nature of mortgage purchasers in the country, the interest rates that we can offer [to investors] are significantly lower. That puts us at a disadvantage."

FHA currently has a $780,000 pool, which will enable it to issue $650,000 in MBS without having to purchase additional mortgages, Llarena said.

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