While participants of the 2012 SiLAS conference hosted by Euromoney Seminars and LatinFinance were happy to move on from the Mexico-centric talk of previous years, more than a few players were still buzzing about the plans by Mexican originator and recurring RMBS issuer Infonavit to eventually morph into an investor. (See graph at right for projected cash flows.)

"We will become one of the pension funds in Mexico," said Jorge Marquez Garcia, the manager of RMBS of this agency, which is akin to a GSE. Speaking at a panel, Marquez said that when it becomes an investor, around 2018, it will most likely no longer issue RMBS, and will also significantly scale back the number of loans issued each year.

The agency forecasts a peak origination of 590,000 loans in 2017, falling to 380,000 loans annually from 2018-2020 and then rising slightly to 400,000 in 2021.

But this is further into the future. Over the next few years, Infonavit plans to keep issuing RMBS and to float its first deal backed by peso loans as early as 2013. To date, Infonavit's transactions have been backed by loans denominated in multiples of the minimum wage, and most of their deals have been denominated in inflation-indexed units (UDIs), which roughly move in tandem with the collateral. Within the next few months, the agency will start issuing mortgages in straight pesos.

"The whole mortgage market is moving toward peso products," Marquez said, on the sidelines of the conference. "That means that the mortgage market is evolving and that we can introduce complexity within the funding side of the mortgages because there's a curve for pesos but not an interest rate curve for minimum wage."

He added that a peso-to-peso match between collateral and a securitization will likely mean that a deal would need less collateral to achieve the desired rating of triple-A on the national scale.

But eventually the agency will probably move out of the RMBS game altogether. This is because Infonavit will nearly achieve its mandate to cover the housing deficit faced by Mexican workers - all of whom contribute to a national housing fund - in five to six years. "We'll become very liquid, very fast," Marquez said.


Revitalizing Nonbank RMBS

The main housing deficit in Mexico, however, is in the informal sector, and it stands at around five million homes. This is the population serviced by the Sociedad Hipotecaria Federal, and represented part of the segment that was borrowing from the nonbank originators known as Sofols before their financing model unraveled.

Marquez said that the Sofols can make a comeback, provided they change their model of financing long-term assets with short-term liabilities. "They need to have a sustainable source of funding," he added. Banks, he said, were likely to prefer covered bonds to RMBS once the covered bond sector gets started in Mexico.

Also on the sidelines of the conference, Jorge Unda, the chief investment officer for BBVA in Latin America, said that a revitalization of RMBS by Sofol issuers was possible but that the approach of participants would have to evolve.

For starters, Unda said that during the heyday of Sofol RMBS issuance there was a misplaced faith that the assets were significantly heterogenous. "They were sold as a diversified instrument, and they weren't," Unda said. "If the market wants to go back, [players] have to go and say 'this is the risk I have, and this is the value of the risk.'"

Dispensing with the idea of "diversity" and accepting that the risk might be quite specific and highly correlated within a given pool would be necessary to revive the market. Another would be standardizing the mortgage product - so, for example, LTVs would not be all over the map within a single pool, Unda said.

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