Nicaraguan mortgage bank Primer Banco Inmobiliario (Pribanco) is preparing its first mortgage securitization deal. Working in conjunction with local bank Invercasa, Pribanco is structuring a trust and expects to launch its first offering of $10 million in the next two months.

"Even though the transaction is very small, we plan to have part of it wrapped and tap the foreign markets," said Mario Gonzalez Holman, president of Pribanco.

The deal will be backed by mortgages for high-income Nicaraguans but Holman explained that an expansion of the securitization market could also bring offerings backed by mortgage payments on housing projects for the low-income sector.

"We are working closely with Nicaragua's central bank on tax cut plans that will promote long-term lending and help develop a secondary mortgage market," Holman explained. "But the road ahead of us is long and difficult."

The country's housing finance sector suffers from many ills. Following 12 years of Sandinista rule and civil war, which ended in the bankruptcy of the banking system and a halt in construction, only 1% of credit in the country is devoted to the housing sector. In addition, a powerful earthquake in 1977 destroyed large parts of the capital Managua and many areas of the city were never rebuilt.

As a result, outstanding mortgages totaled just $30 million at the end of 1998 and the housing deficit, estimated at around 450,000 in a country of only 4.3 million people, is considered one of the worst in the region.

"A lot of work still needs to be done," said Holman. "But we are optimistic."

The market is not likely to see other securitizations out of Nicaragua in the short term. The country has a minuscule economy and lacks strong export-oriented companies that could be potential ABS issuers.

However, some sources estimated that the country receives approximately $500 million in check remittances from Nicaraguan workers living in the U.S. "The way I see it, that is the only other viable source of securitization deals out of Nicaragua," said a U.S. banker.

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