NEW YORK - The nascent RMBS market in Mexico has stirred interest in upstream activities like co-financing between private and state-owned originators, risk-based mortgage lending and credit scoring. These topics formed part of a lively discussion at Moody's Investors Service sixth annual Latin American Securitization Briefing' held here Sept. 23.
Jose de Jesus Gomez, director of planning at state agency Infonavit, was on hand to tout co-financing arrangements, in which Infonavit and private mortgage lenders known as Sofols pair up to finance a single home purchase. "We launched this in September of last year and have originated 25,000 so far this year," Gomez said. He projected that the origination of co-financing loans could hit 75,000 in 2006.
While Infonavit's primary mandate is to encourage home ownership among working class Mexicans, the co-financing loans target the middle-income strata. "The advantage is you can buy a more expensive home," Gomez added. The product is used for property worth up to Ps500,000 ($46,000), an undreamed-of luxury for Infonavit's traditional client.
Gomez said the agency is already looking into the securitization of this product, once it has matured. "There are a few structural issues we need to resolve before securitization," he said. "We have to have a track record; some more seasoning."
In a standard co-financing arrangement, Infonavit provides one third of the mortgage and a Sofol lends the rest. The rate is invariably lower for the Infonavit portion, as the agency enjoys cheaper funding and the security of automatic deductions.
Meanwhile, questions of credit scoring and risk-based pricing were on the minds of a few panelists. Manuel Campos, general director of Su Casita, one of the largest Sofols, cautioned that strict implementation of U.S. credit scoring methodology would lead to the rejection of more than half the originator's mortgage applicants. Contacted after the conference, Ricardo Ortiz of Su Casita's risk management division said that the lender uses a variety of tools to assess the risk of a borrower. "We've already developed an origination scorecard," he said, adding that they were in the process of implementing this model, developed with TransUnion CRIF.
Su Casita has also been using a credit-scoring model from state agency Sociedad Hipotecaria Federal and has recently been comparing credit scores from the national Credit Bureau with borrowers' actual behavior. Su Casita is still exploring "what the score might be missing and how we can complement it with other tools." In addition, many potential borrowers have no score at all with the Bureau.
Accurate credit scoring would facilitate risk-based pricing, still in its infancy in Mexico. "The mortgage industry in Mexico has been based on the portfolio model of accumulation," said panelist Jose Landa, managing director of GMAC-RFC in Mexico. "There is no risk-based distinction among clients, geographies or types of housing." In short, if a riskier borrower doesn't pass muster, he is simply rejected instead of being offered the loan at a higher rate. But the greater availability of figures on default probability and severity - a by-product of proliferating RMBS - should help give birth to risk-based pricing, Landa added. "We have to [learn] how to include those that are walking out of branches with no option in home borrowing," he said. Su Casita, for one, has a pilot program of risk-based lenders in place, according to Ortiz.
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