A major catalyst in reviving RMBS in Argentina, Banco de Credito y Securitizacion (BACS) has recently closed a warehousing credit line with the International Finance Corp. Under the terms of the credit, the multilateral will provide the bank with $50 million in two equal installments. Termed at three years, the line is Libor-based and secured by mortgage assets, including RMBS. The funding strengthens an existing relationship between the two, wherein IFC is a 20% shareholder of BACS.

The funding will add muscle to BACS' mortgage-acquisition business. "Since the crisis [following the currency devaluation in December 2001] what we've done is structure Banco Hipotecario's program," said BACS' CFO Rafael Rivero. Apart from structuring Hipotecario's program, BACS is also looking to re-package self-originated mortgages. "We expect to go out with a transaction backed by our own loans this year with at least Ps100 million ($32 million)," Rivero said.

Hipotecario, the country's largest originator, with a market share of 27%-30%, is largely responsible for restoring Argentina's RMBS market, according to a market source. The bank launched a Ps500 million RMBS program June 9 and, as of last Friday, will have placed Ps360 million. Issuing a deal roughly once a quarter, Hipotecario is expected to wrap up the program this year and then establish a new one. Hipotecario turned out Ps220 million in mortgages last year, with growth recorded every month.

However, according to the latest figures, origination has failed to keep up with the securitization program, suggesting a bottleneck might form unless either the clip of lending picks up or of securitization slows down. The volume of mortgages on Hipotecario's balance sheet shrank 5.5% between the end of 2004 and 2005 but grew 6% if loans that were securitized are included.

Banco Rio and Banco Galicia have also placed domestic RMBS since the economic recovery began three years ago.

The collateral for RMBS issued in Argentina so far have been a mix of mortgages issued before and after the devaluation, including loans that were denominated in dollars at inception. At least in the case of Hipotecario's loans, the pre-devaluation loans are adjusted by CER, an inflation index. Loans extended since the devaluation are fixed-rate, and are taking an increasing share of the mortgage pools backing RMBS. "In Hipotecario's last transaction, the bulk of the pool was originated in 2004 and 2005," Rivero said.

Hipotecario's RMBS are indexed to inflation, creating a mismatch between the underlying fixed-rate collateral and the coupon on the bonds. To mitigate this risk, the bank has capped the yields on its bonds, according to Rivero.

The maturity of loans from the time they're dropped into one of Hipotecario's RMBS deal has remained below 13 years, a reflection of the market-wide reluctance to lend at longer terms in Argentina. In addition, even with white-hot growth in the overall economy, mortgages have been available to only the upper-middle and upper classes since the devaluation. Part of the reason is that work salaries have failed to keep pace with climbing property values.

Market players say it's still to early to talk of a cross-border RMBS deal, even though Banco Hipotecario has tapped foreign bondholders for a total $250 million in a five-year plain vanilla bond issued in October and re-opened in January.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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