Mexican players are hopeful that the introduction of a new mortgage insurance (MI) product will spur a secondary market in mortgages and, down the chain, advance the nascent MBS market. "It's very positive," said Jose Landa, general director of GMAC Financiera. "We need this to create risk-based pricing," he added.
State agency Sociedad Hipotecaria Federal (SHF) is timed to debut a product shortly that mimics U.S. MI. Apart from stimulating a secondary mortgage market, the insurance is expected to bulk up investments in the "technology systems needed to create standardization, agility and efficiency," said Moody's Investors Service in a recent report on the product.
When the new MI gains a foothold, other providers are expected to come in. The SHF "wants to function as an inductor," Landa said. The development of this industry might follow a narrative similar to that of the partial guaranty. The SHF inaugurated that product two years ago, opening the doors for partial guarantees and more comprehensive enhancements by development bank FMO, the International Finance Corp. and MBIA.
The MI available so far doesn't appear to have many fans. "The SHF has been providing a mortgage insurance that has done little to kindle a secondary market," said Brigitte Posch, vice president at Moody's. Landa added that the former requirements were ineffective in standardizing the origination policies of the Sofols, as private-sector housing finance companies in Mexico are known.
Without a better product, the industry was inadequately pricing risk based on LTV, Posch said. The new insurance will help the Sofols gain a better understanding of the risk perception among investors of loans with certain LTVs and other characteristics, Landa added. "We'd be able to compare all this with the cost of the mortgage insurance," he said.
Taking out MI in Mexico will be broken into two steps. The lender must first receive a Master Mortgage Insurance Guarantee (MMIG), which requires an investment-grade rating on the national scale and a servicer rating of average or above average. There will be a grace period on the latter criteria, in order to let the smaller Sofols get up to speed. The leading Sofols already meet the two prerequisites.
Once the MMIG goes through, the lender submits a host of information to the SHF, which then decides whether to give the final OK, in the form of Lender Paid Mortgage Insurance Guarantee.
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