Taking notice of the budding Latin American housing market, GMAC RFC is going south of the border - and not just down Mexico way. The U.S. leader in mortgage and asset-backed securitizations crossed the Rio Grande over two years ago and is looking to consolidate its presence, generate assets and - eventually - issue securitization deals.
The company first established Latin American operations in Mexico and Brazil and is now eyeing Argentina and Chile as areas ripe for expansion.
Securitization is at the core of GMAC's efforts in the region. "They are working toward securitizations of mortgage portfolios in Mexico and Brazil," said a banker in New York. "The first transactions would be local and they expect to structure cross-over deals later on. The name GMAC is well-known and well-respected among investors which bodes well for their paper."
The company first established its presence in Mexico, where it operates a servicing company and a mortgage bank. "We are looking to issue MBS but it will take some time," explained Alejandro Landa, director of mortgage finance at GMAC's Mexico subsidiary. "Mexico's mortgages are difficult to securitize because many of them have a history of negative amortization. There is a need to regain investors' confidence before you issue a securitization. We expect to be in the market in the next two years."
Indeed, some of Mexico's non-bank mortgage lenders or Sofoles (Sociedades Financieras de Objeto Limitado) started testing the MBS market recently with Financiamiento Azteca, Hipotecaria Nacional and Hipotecaria Mexicana issuing local deals (ASRI 5/8/00 p.8), yet investors remain skittish.
Landa explained that, for GMAC, the best course of action is to initiate a program of mortgage origination that can later be securitized. It also plans to provide direct lending to homebuyers and to provide financing for the Sofoles in order to create an entire system of mortgage origination. "By engaging in direct mortgage lending we expect to gain a hands-on understanding of our clients and the market as a whole," he said. "And by supporting the Sofoles, which are very well respected in the market, we will gain investors' confidence in our assets."
Brazil is emerging as GMAC's second Latin hub. The local subsidiary is seeking to establish itself as a real-estate finance bank within five years. That includes warehouse, construction and commercial lending as well as portfolio acquisitions, direct mortgage origination and servicing. "We certainly can't do it all at the same time," explained Luiz Pinto Lima, director of the Brazilian subsidiary. "The GMAC group needs to learn more about the Brazilian market and its players and we have to be able to develop and successfully manage these operations."
The Brazilian operation is also working on the creation of a mortgage company. "We see an enormous potential in Latin American housing," Lima said. "Brazil has a housing deficit of six million units and I think that with the improving economic scenario this is the right time for GMAC RFC to come into this market."
Securitization in Brazil is a long-term project. "We definitely plan to issue mortgage-backed and asset-backed securities, but first we need to buy assets and season them," he added. "We'll start with a plain vanilla deal in order to create confidence among investors and securitization will follow."
The appearance of GMAC on the Latin scene is not an isolated incident. "This is the beginning of the second wave in Latin securitizations," said Federico Hermida, director of asset-backed securities at Deutsche Bank in Argentina. "First came the banks' securitizations and now non-bank originators are stepping in. U.S. players such as GMAC RFC, Providian and The Money Store have been conducting fact-finding trips for some time now and things are rapidly shaping-up."
GMAC seems confident that it can tackle the challenges of being the new kid on the block. "The basic idea is to be local and to think global," explained Lima. "That means that GMAC hires locals to manage its Latin operations, people who are well known in the local market and who can customize GMAC's procedures to a specific country. I think that other U.S. companies are looking at what we are doing and what others are starting to do and once they see a success story come out of Latin America they will quickly follow us."