Mexico could have its own personal Fannie Mae later this year, if the Mexican Congress approves the controversial plan.

President Vincente Fox has introduced a number of financial reforms since he took office last December, and one of the most ambitious is his attempt to jump-start the Mexican secondary mortgage market by creating a government-sponsored enterprise similar to the U.S.'s Fannie Mae or Freddie Mac. The Mexican Congress could receive the proposal as soon as next month.

While the exact structure of the new program, Sociedad Hypotecaria Federal, has not yet been defined, sources said it will likely combine 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. Currently, The World Bank provides a $505 million loan to FOVI, which was approved in 1999 and will be in existence until June 2003.

World Bank sources said nearly $193 million of the loans have already been dispersed and the bank is waiting until the restructuring of FOVI is complete to make further disbursements. FOVI has used the funds for financing its lending program and its institutional development program, strengthening its own operations, a subsidy policy, a financial strategy, corporate reorganization project management and also for subsidies under a special incentive program.

The bank is expected to release a statement next week regarding the effects of the new program on FOVI. Part of the statement will read, "FOVI has recently embarked on a four-year strategic plan which call for the origination of 330,000 mortgages, almost twice the level of the previous five years. The plan also calls for ambitious restructuring in repositioning the institution access to capital markets and thus move away from dependency on official funds. It will also expand the flow of funds available for social interest housing."

Should the new program get approved, it could have a major impact on Mexico's as-yet stagnant mortgage-backed securities market. "They are setting [the program] up in a way that means they are seriously considering making the effort to get [the secondary mortgage market] going," said Jose Ramn Tora, a director of structured finance ratings at Standard & Poor's.

The overall impact of Mexico's new program remains to be seen, though market sources say it is likely that MBS transactions will become a typical function of the market at some point in the future as a result. It makes sense to establish a quasi-GSE in Mexico. After all, Fannie Mae and Freddie Mac have proven to be major successes since their inception in the early 1970s. Mortgage issuance and purchases by the two multi-billion agencies have helped the U.S. MBS market become one of the largest debt markets on the globe, and agency debt has become so important it is on the short list to become a pricing benchmark alternative to Treasury bonds.

Fannie Mae, Ginnie Mae, and Freddie Mac are highly regarded for the work they have done for the U.S., and it is expected that a program of this sort will have similar ramifications for Mexico. As a result of these U.S. mortgage companies, nearly 68% of Americans currently own their own home, while only 5% or 10% of the people in other countries own their own home.

Yet it won't be as simple as moving Fannie Mae below the Rio Grande. There have been several attempts to develop this kind of program in Mexico in the past, but all have failed. "I would think that once this goes ahead, and it's set up, it will start spreading this process," Tora said. However, he warned, "You are still going to be dependent upon macroeconomic conditions, capital market development and investors."

Growing universe

The proposed Mexican housing agency is similar to other programs that have evolved with the help of the International Finance Corp. (IFC) in emerging market countries. Last November, the IFC agreed to invest $140 million into the newly-created Colombia Home Mortgage Co. (CHMC), the first domestic company to acquire and securitize residential mortgage loans in Colombia. The IFC also recently invested $100 million in the Korean Mortgage Co., Korea's first specialized secondary mortgage company. The IFC has also sunk $150 million into Argentina's Banco de Credito y Securitizacion and $50 million to Banco Hipotecario (BH). (see ASRI 11/6/00 p. 7)

Most market participants are in agreement when it comes to the development of the mortgage market in Latin America: it will develop - it's just a question of how long it will take. "We are going to see a tremendous growth in securitization of different types of things [in Latin America] -the biggest area of finance which is logical will be in terms of the development of a mortgage market," said a regional manager at an international investment company.

Most Latin American countries do not have a true mortgage market. In general, working Latin American consumers who have saved at least half of the value of a home cannot get a loan with a maturity of more than one or two years. "That doesn't really make for a mortgage market," the regional manager said. "Some of the countries are further ahead, like Argentina, in the next 10 years, will all be able to move down this path where [consumers] can get a mortgage loan for 15 or 20 years. And maybe you have a 20% or even 50% down but you will have the ability to make a mortgage."

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