It's becoming a hot market south of the border as Mexico, Brazil and Chile played some local hard ball last year. Analysts at Moody's Investors Service expect even more going forward with Mexico's newly approved mortgage GSE, Brazil's involvement with the Inter-American Investment Corp. - a part of the Inter-American Development Bank - and increased investor interest in Chile.

Across the board, securitization in the region's local markets was up nearly 60% in 2001 to $1.5 billion compared to $955 million the prior year, according to Moody's. The increased issuance came despite so much spilled milk in Argentina, and Moody's noted in its recent year-end review that investors' fears of an Argentine default and the possibility of regional contagion did in fact stunt the domestic market's growth last year.

According to Moody's, the greater issuance levels in the Latin American local arena were attributable to larger deals and more deals in Mexico, Brazil and Chile, as well as new entrants into the securitization market, including Costa Rica and Panama.


While the local Mexican capital markets were affected by the economic slowdown in the United States, and the uncertainty of the new tax laws that were sent to the U.S. Congress for approval in the second quarter, the increase in local issuance in Mexico last year was primarily a result of President Vicente Fox's efforts to jump-start the secondary mortgage market.

The total amount securitized in Mexico spiked over 600% to $427 million in 2001, up from a total of $65 million in 2000, according to Moody's. Mortgages made up 26% of the market and construction-related transactions accounted for about 12%. Together, the mortgage transactions and the construction-related deals were the main asset types securitized in Mexico in 2001 as a result of the high demand for housing and the need for construction and mortgage financing alternatives in the country.

In September, Mexico's Senate approved Fox's proposal to create a government-sponsored entity (GSE) called Sociedad Hipotecaria Federal (SHF). The GSE will be similar to a United States Fannie Mae or Freddie Mac (see ASR 5/21/01).

SHF combines resources with Fondo de Operacin y Financiamiento Bancario de la Vivienda (FOVI) and Instituto Nacional del Fondo para la Vivienda de los Trabajadores (INFONAVIT), state-owned organizations that currently provide housing for low-income sectors of Mexico. The World Bank currently provides a $505 million loan to FOVI, which was approved in 1999 and will be in existence until June 2003.

While the report regarding the GSE is expected to be out this week, the main objective of SHF is to increase the supply for low and medium-income Mexican households through the securitization of mortgages to increase the supply of mortgage-backed securities in the local market.


According to Moody's, mortgage-backed securities in Brazil are becoming more appealing to institutional investors. The total amount of MBS securitized in 2001 reached $88 million, up from $39 million the prior year. The increase was primarily a result of the issuance seen by Brazilian Securities Companhia de Securitizaco, a special purpose company that was created for the sole purpose of acquiring Brazilian real estate assets and issuing Certificados de Recebiveis Imobiliarios (mortgage-backed securities). The issuer is co-owned by Grupo Ourinvest and Grupo Rossi. The Notes issued by Brazilian Securities were initially bought by the IIC, which can invest up to $10 million of securities in order to gain investor confidence.

Moody's expects to see substantially more issuance out of Brazil in 2002 as a result of IIC's newly approved $40 million warehouse facility for Brazilian securities. "The reason that Brazilian Securities was only seeing little deals was because they couldn't buy all the mortgages at once so they were buying small amounts," said a Latin American analyst with Moody's. "Now with the warehouse we will see more transactions in higher volumes coming out of Brazil next year."


According to Moody's year-end review, while Chile is continuing to recover from the 1999 recession, the local capital markets saw significant growth in 2001. The domestic mortgage market, and the house leasing securitization volumes increased by 66% to $220 million from the previous year. "Securitization benefited from improved investor perception because investors got more familiar with the mortgage product so there was more demand for that," the Moody's analyst said.

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