Emerging market pros are familiar with the fear of contagion. In the case of Mexico, it might seem only natural that U.S. subprime anxiety would cross the Rio Grande. But so far, the spillover effect has been nil.
Most RMBS deals from Mexico are originated by nonbank housing finance companies known as Sofols. Examining them with the lens of income, Sofols' customers look by and large subprime, sources said. But putting them side by side with subprime borrowers in the U.S. is basically an apples-to-oranges comparison.
"We consult the national credit bureau on a borrower's creditworthiness," a source from one Sofol said. Only borrowers who are relatively safe get the nod. While there isn't an exact score that acts as a cutoff point, he and other industry sources said that their practices are nothing like the risk-hungry subprime borrowers up north. In addition, the dizzying pace of rising property values that underpinned significant subprime borrowing hasn't been part of the equation in Mexico.
Players in the peso market aren't concerned about an indirect impact either - for example, that U.S. investors, spooked by lending in their home country, will take a more cautious approach in buying mortgage securities from across the Rio Grande. One source said differentiating the product won't be a problem.
Indeed, the banker source said that subprime lenders have actually come sniffing in Mexico for opportunities. "They're looking...in other markets," he added.
On the cross-border front, Mexican originators Su Casita and Metrofinanciera are planning cross-border transactions. The former is working with Credit Suisse, while the latter has IXE and Deutsche as the arrangers.
Across the pond, the volatility unleashed in part by subprime worries in the U.S. hasn't rattled cross-border players of structured emerging market paper. While the science of gauging contagion can be complicated with EM securitizations - most don't actively trade - indications are that Russian and Turkish paper exhibited the same resilience as European ABS in the recent turmoil. "Spreads have held in," one London-based banker said. "At the end of the day, [EM structured bondholders] are ABS investors," he added. "They'll see where other triple-Bs are in their portfolios," and price accordingly.
This is despite the fact that spooked investors sent currencies, stocks and vanilla corporate bonds from emerging markets south. But the true test of how immune securitized EM paper is will come with the next batch of deals. Players will keep a close eye on an upcoming RMBS from Kazakhstan's BTA Ipoteka, possibly the next cross-border transaction to price from the region.
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