Mexican state housing agency Sociedad Hipotecaria Federal (SHF) is shooing its overgrown children into the arms of private bankers and bond investors. Dropping a chili pepper into the already hot sector of housing securitizations, the SHF is phasing out monies for construction bridge loans extended to housing finance companies. The result: Sofols - as the companies are known - will turn aggressively to the market. "They will have to diversify their funding sources," said Luis de la Pena, an analyst at Fitch Ratings. Sofol heavyweights Metrofinanciera and Su Casita have already started securitizing their bridge-loan portfolio (for interview with Su Casita Vice President Manuel Campos, see p. 21) and others are sure to follow suit, sources said.
The bulk of the housing companies' activity goes to financing mortgages, which the SHF will continue to fund, according to a source in the agency. But the hunger for bridge loans alone is stunning and in both sectors, growth is racing at breakneck speed. Sofol assets hit Ps63 billion (US$5.8 billion) in December, up 54% from the previous year. Some 75% pertained to mortgages and 25% to bridge loans for construction.
In the case of bridge loans, the SHF is replacing direct money with guarantees for both loans and paper. The agency debuted its guarantee when Metrofinanciera issued a Ps500 million (US$46 million) securitization of bridge loans last September via IXE Casa de Bolsa (see ASR 9/23/02, p.20). SHF is giving itself a year to exit bridge-loan funding. "We don't want it to be abrupt," said a source at the housing agency. "By providing the guarantee we're ensuring that Sofols are not going to be left in the lurch." The SHF is rated triple AAA on the national scale since it is government-owned.
By making guarantees a must-have, the SHF has excited the interest of rivals. Dutch development bank FMO is already on the field, having provided a partial guarantee to an impending issue from Credito y Casa (see ASR 3/3, p.23). And one or more of the monoline insurers and multilateral agencies will be sure to follow, sources said. MBIA has gotten its foot in the door, rumored to be wrapping an upcoming toll-road bond, its first in the peso market. The International Finance Corporation, meanwhile, can hardly stay aloof, with its 14.4% stake in Su Casita.
The SHF is reshaping its financing role partly because the agency was testing legal and accounting limits as the sector's financing needs shot through the roof, said a Mexico City-based banker. Those curbs are part of recent modifications. "It had recently changed from being an entity entirely controlled by the Mexican Central bank to a government agency with new regulations in terms of risk and lending," the banker said.
All this means that Sofols are expected to increase credit lines with existing major providers like GMAC, Banorte, Invex and Scotiabank Inverlat. Local and foreign banks that are a bit greener in the sector are seen joining the fray. Particularly since they offer Sofols the chance to get loans off their balance sheets, securitizations will inevitably pick up as well. According to Campos, issuance for bridge-loan lending could easily hit Ps8 billion (US$736 million) this year, four times last year's figure. The bulk of this will come in the form of securitizations, sources said.
For at least the medium term, the SHF will continue bankrolling mortgage origination by Sofols. Yet the companies are expected to court investors anyway, driven partly by their outsize demands and partly by their own efforts to strengthen their capital bases. The first true MBS are forecast to touch ground within the next few months. The first will probably be from Banorte, which has a Ps360 million securitization in the works (see ASR 3/3/03). But several Sofols are already talking to Deutsche Bank, which has been mandated by the SHF to pull together a master trust.
Despite the high expectations for issuance this year, a potential surge in housing securitizations faces a stubborn obstacle. Pension funds - the leading providers of liquidity - are subject to a 10% limit on allocations to financial institutions, a category that presently covers Sofols. "There's still a lot of room for growth because funds only hold between 2 and 3 percent of their portfolios in Sofol paper, but it will become a constraint if the market grows as fast as people think it might," said the Mexico City-based banker.
One option is for the regulators to liberate Sofols from these curbs, but sources don't see that happening anytime soon. Pension funds held Ps324 billion (US$29 billion) in assets as of December. Growth is running at Ps80 billion (US$7.4 billion) a year.
Even if Mexican investors can satisfy Sofols' groaning appetite for funds, sources say the companies will eventually rap at the door of U.S. markets. But before they go cross-border, a more developed currency swap market must emerge, particularly in the case of longer-term MBS.
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