NEW YORK - Moody's Investors Service positioned Mexican real estate assets at center stage for its fifth annual Latin American Securitization Briefing in an echo of last year's conference. But there was no mistaking that things were different now. Over the past 12 months, originators have debuted RMBS and deals backed by commercial real estate receivables; consolidation has been given a shot of adrenaline with the recent announcement that a Mexican subsidiary of Spain's Banco Bilbao Viczaya Argentaria (BBVA) will purchase leading mortgage originator Hipotecaria Nacional for $375 million; and players that now wear multiple hats are becoming increasingly specialized.

In addition, the haze over Mexico's first cross-border securitization of construction loans is starting to clear (see Metrofinanciera on page. 21).

"I think what happens within the next eight months will define 80% of what the market will look like in the next few years," said Manuel Campos, the CFO of Su Casita, second in size among a group of special purpose finance companies known as Sofoles. As of April 2004, Su Casita had assets of Ps17.5 billion ($1.5 billion).

While the BBVA news certainly didn't derail the pervasive optimism that real estate securitizations in Mexico would keep growing, speakers and attendants alike acknowledged that the acquisition might delay the onset of a more robust market by yanking the largest Sofol out of the market. With assets of Ps25.6 billion, Nacional has been a mainstay of issuance of construction-loan backed deals, the asset that proceeded - and continues to overshadow - mortgages in Mexico's real estate receivables sector.

The purchase could end up shelving an in-the-works securitization of Nacional mortgages being handled by Citigroup Global Markets. Players involved in that deal could not be reached for comment.

The thinking is that funding from the new parent will be cheap enough to preclude the need for securitization, at least in the foreseeable future. In an example of how cheaply foreign-owned banks can provide mortgages, BBVA Bancomer - a bank owned by the holding company purchasing Nacional - already offers fixed-rate mortgages at 12%, while the comparable government reference rate is 10.60%. The premium on even top-rated MBS demanded by investors would make a securitization of Bancomer's mortgage assets untenable from a purely funding perspective, according to one attendant. Nacional, it now appears, might have the same advantages.

In light of the BBVA announcement, Moody's de Mexico placed its A3.mx' national scale rating and Ba3' local currency rating on Nacional under review for upgrade. Standard & Poor's and Fitch Ratings placed their respective national scale ratings of A-(mex)' and mxA-' on positive watches as well.

While the straight funding incentive might slip away, other considerations like matching the tenors of assets and liabilities could draw Nacional back to securitizations if its new owner does indeed halt issuance in the first place, players said.

Not all consolidation is bad news for Mexican ABS. Because of the small size of their portfolios, smaller Sofoles have not been able to collect the collateral for a deal, according to Moody's Senior Credit Officer Philip Kibel, who spoke at the conference. That, paired with the gradual erosion of origination funding by government agency Sociedad Hipotecaria Federal, has stunted asset growth among the smaller originators, decelerating the overall figure from 50% in 2002 to 11% in May 2004 year-on-year.

The smaller originators might choose to link up the way GMAC and Su Casita had in a two-issue program that closed in August for the inflation-indexed equivalent of $157 million. That route, however, can incur its own headaches, such as disagreements over enhancements when dealing with pools that widely diverge in quality.

Moody's Senior Analyst Brigitte Posch sees an alternative. "It's more feasible for bigger banks or larger Sofoles to buy these mortgage portfolios from the small Sofoles," she said.

The funding appetite from the larger housing Sofoles is not dying down anytime soon either, as evidenced by the still-hot growth in assets among three largest originators - Credito y Casa, Nacional and Su Casita. Combined, their assets more than doubled between April 2002 and April 2004, from Ps28.0 billion to Ps59.3 billion.

The largest originator, Infonavit, is pressing ahead as well. Following up a Ps751 million RMBS in March, the agency - both a mortgage originator and a pension fund - is on the verge of registering a Ps4 billion shelf arranged by BBVA Bancomer and local brokerage Inbursa.

"We could have done more in March, we just wanted to test the market," said Jose de Jesus Gomez, planning coordinator at Infonavit. Market conditions permitting, the agency could open and close the program before the end of the year in more than one issue, but there is no set timetable, Gomez said.

Another theme that rang through the Moody's conference was increasing specialization among housing finance players. The main piggybank for originators, Sociedad Hipotecaria Federal, has pulled out of funding for construction loans and is phasing out all monies for mortgages by the end of 2009, as it throws greater weight behind its roles as guarantor and insurance provider.

On the servicer front, some players are hopeful that new providers will come in from abroad and that Sofoles themselves will let others service their transactions. "As volumes increase, we'll see more special servicing," said Gonzalo Robina, director of acquisitions at Fenix Administracion de Activos, a company that focuses on purchasing and managing distressed real estate assets and loans (see Fenix on page 21).

Finally, conference attendees touted the increasing sophistication of Mexican investors as a sign that volumes were bound to rise and a vibrant secondary market was no longer a distant mirage. But the stance of regulators has placed limits on how far investors' understanding of ABS can actually be put into practice. A rule forces pension funds - the leading investors in Mexico - to include both ABS and corporate paper in the caps they face on exposure to each issuer. "So if Su Casita issues corporate paper, MBS, and construction loan deals it will all fall under the Su Casita cap," that each fund has, said Sue Romo, vice-president at Credit Suisse First Boston. "There are a lot of parties pushing for that to change."

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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