SHF - Banco Central do Brasil

The International Experience:
Housing Finance in Mexico
Evolution, Strategy and Challenges Ahead
Housing Finance International Conference
Promoted by Banco Central do Brazil
November 7-9, 2007, Salvador, Brazil
2
Contents
I.
Introduction
II.
Demographic Dynamics, Housing Demand and Financing Needs
III.
The Mexican Mortgage Market including FOVI/ SHF role
IV.
Securitization Model for Mexico and Current Strategy
V.
Challenges ahead in Housing Finance
3
SHF mandate and activities
•
SHF was created in 2001 as a government financial institution oriented to foster the
development of the primary and secondary mortgage markets.
•
Today it serves as a mortgage bank and as a financial guarantor.
•
SHF grants long term financing to financial intermediaries and covers their
interest rate risk. SHF does not lend directly to individuals.
•
SHF offers products like mortgage insurance and financial guaranties.
•
Until 2013, SHF will have the 100% guarantee from the Federal Government
•
After 2009 SHF will not be able to grant finance, hence, it is necessary to develop
alternative mechanisms of housing financing.
•
SHF considers the securitization of mortgages as the most efficient mechanism of
house financing.
SHF’s Mission and Vision
•
Based on SHF´s mandate we developed our Mission and Vision
Mission:
Lead the development of a competitive market in order to allow all
Mexicans be able to acquire residence.
Vision:
To be an innovative institution in solutions to develop social
housing.
4
5
Mexico key figures & facts
•
Population of 103 million, forming 26.1 million households.
•
Population growth rate of 1.9%, and life expectancy of 75.3 years.
•
76% of households are in urban and semi-urban areas.
•
Per capita GNI (PPP methodology) of USD $9,590 in 2004.
•
46% of households in the informal sector.*/
•
Approximately 20% of population holds a checking or savings account.
•
Mortgage Portfolio / GDP of 11.1% in 2004
*/ Informal household defined as that in which no single member is a wage earner in a firm that contributes to
social security systems.
6
Contents
I.
Introduction
II.
Demographic Dynamics, Housing Demand and Financing Needs
III.
The Mexican Mortgage Market including FOVI/ SHF role
IV.
Securitization Model for Mexico and Current Strategy
V.
Challenges ahead in Housing Finance
7
Over the next 25 years, the number of households will grow at an
annual rate of 2%.
From 2000 to 2030 the number of households in Mexico will grow
83%. These favorable population dynamics is coupled with annual
per capita income of approximately USD $9,500*
Million Households
Number of Households in Mexico
/* PPP Methodology
45
40
35
30
25
20
15
10
5
0
41.8
22.8
9.8
4.8
1940
1970
2000
2030 e/
Source:CONAPO
8
Demographics show 2012 as the year with the largest number of
household formation in the foreseeable future
According to official estimates, 672,018 new households were formed during
2005 throughout the country. This figure will rise up until 2012, when 691,242
new households will be formed.
20
19
18
70-74
60-64
50-54
40-44
Ages w ith
tendency to
form
households
30-34
20-24
10-14
0-4
20
20
17
20
20
15
16
20
14
20
20
12
11
13
20
20
10
20
20
08
07
09
20
20
06
24
22
20
20
05
25.5
32
30
28
26
80 and up
age groups
636
38
36
34
Million of Households
36.3
667
20
20
Population by Age Groups in 2004
691
04
700
690
680
670
660
650
640
630
620
610
600
20
Thousands of New
Households
Household Formation 2004-2020
0
New Households
Source: Conapo
2
4
6
millions of persons
Total Number of Households
Source: Conapo
8
10
12
14
9
Even under very conservative assumptions, SHF estimates that the
residential mortgage portfolio will grow from USD $79,600 millio
n in
million
2006 to, at the very least, USD $338,300 million in 2020.
Mortgage Portfolio in Mexico
400,000
Million Dollars
350,000
300,000
la
Cumu
250,000
200,000
tive
rowt
G
l
a
Annu
e:1
t
a
R
h
0.1%
150,000
100,000
50,000
2006
2007
2008
2009
2010
2011
2012
INFONAVIT and FOVISSSTE
2013
2014
2015
2016
2017
2018
SOFOLS and Banks
2019
2020
Source: SHF estimates
The projections of the mortgage portfolio are based on potential estimated demand assuming an 3% annual growth rate for GDP
and the same levels for mortgage rates than those of 2006.
10
The flow of financial savings in the country will not suffice to finance
the growth of mortgage portfolios.
Tapping into the savings of domestic institutional investors as well as
foreign investors is an absolute must to maintain the growth of the
mortgage sector.
Accumulated Net Flow Needed for Mortgage Loans Granted by
the Private Sector and Siefores and Banks Savings
2500
Billion Pesos of 2006
2000
1500
1000
500
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Private Mortgages
Source: SHF Estimated
Siefores Savings
Savings from banks
11
If these conditions are met, Mortgage Portfolio/GDP will grow frfrom
om
11.1% to 27.7% over the next 15 years
This growth comes from population dynamics coupled with a
conservative scenario of disposable income growth for Mexican families.
Mortgage Portfolio / GDP of Selected Countries
Total Mortgage Portfolio (% GDP)
100
90
80
70
60
50
40
28%
30
11%
20
10
Source: IMF, World Economic Outlook September 2004, Central Bank of South Africa, CMHC (Canada), SSKI (India), Komoco
(Korea), GHB (Thailand), China On-Line, SHF (México), Michael Lea.
Figures for Korea, Thailand, Brazil, Poland, China, India and South Africa correspond to 2001.
Po
la
nd
In
di
a
Br
az
il
C
hi
na
M
Ita
éx
ly
ic
o
(2
00
5)
Ko
re
a
Ja
pa
n
Sp
ai
n
U
K
Au
st
ra
li a
G
er
m
an
y
Ire
la
nd
C
an
ad
a
SA
U
Fr
an
M
éx
ce
ic
o
(2
02
So
0)
ut
h
Af
ric
a
Th
ai
la
nd
N
et
he
rla
nd
s
0
12
Contents
I.
Introduction
II.
Demographic Dynamics, Housing Demand and Financing Needs
III.
The Mexican Mortgage Market including FOVI/ SHF role
IV.
Securitization Model for Mexico and Current Strategy
V.
Challenges ahead in Housing Finance
13
The industry is still dominated by the two Federal Housing Funds
Funds,,
INFONAVIT and FOVISSSTE.
About ¾ of loan originations still do not involve a private intermediary undertaking
at least part of the risk inherent in the transaction. FOVI/SHF has greatly
diminished its importance as the funding source for mortgages originated by
private intermediaries thanks to the development of the market.
Mortgages by Financing Source
INFONAVIT +
FOVISSSTE
84%
INF ONAVIT + F OVIS S S TE
75%
SOFOLS
FOVI Funding
13%
BANKS
3%
2002
Total 341,939 Loans
S OF OLS
S HF F unding
5%
2006
B ANKS a nd
S OF OLS
Own F unding
20%
Total 675,041 Loans
14
But the market share of private intermediaries ––banks
banks and
sofoles
– is growing at a faster pace than Federal housing funds .
sofoles–
Yearly Rate of Growth of Mortgage Loans Originated by the Federal
Housing Funds and the Private Intermediaries
Source:CONAVI
15
INFONAVIT
•
The board of directors is represented by workers, employers and the
Federal Government.
•
INFONAVIT receives on a monthly basis, 5% of the formal private sector
workers payroll, and credits to personal accounts.
•
INFONAVIT loans, interest rates and payments are indexed to the
minimum wage (MW)*.
•
INFONAVIT interest rates are not market rates, there is an implicit interest
rate subsidy on all its lending.
•
INFONAVIT relies on payroll deduction for its collections when borrowers
are employed by firms in the private sector. Collection mechanisms for
unemployed borrowers or those migrating to the public or the informal
sectors still need to improve.
•
Average dollar amount of their loans: $22,000
* MW= usd$ 134.5 per month
16
FOVISSSTE
•
Similar objective and sources of funding than INFONAVIT, FOVISSSTE is a
wage-based housing fund for federal employees, and is the institution in
charge of providing housing financing to over two million of federal government
employees.
•
The board of directors is represented by different government agencies and by
ISSSTE (the public pension fund for federal employees).
•
FOVISSSTE receives on a monthly basis, 5% of the federal employees
payroll, and also collects through a pay-roll deduction mechanism.
•
FOVISSSTE loans, like those of INFONAVIT, are indexed to the minimum
wage and pay lower than market interest rates; however to a greater extent.
•
FOVISSSTE lags behind INFONAVIT on revamping its operating procedures,
particularly regarding the servicing of the loan portfolio.
Banks
• Until 1994, banks were the only private intermediaries doing mortgages
in Mexico.
• In 1995, the “Tequila Crisis” bankrupted the Mexican banking system
and private banks abandoned the mortgage market. Past-due loans
became rampant, specially in the mortgage portfolio of banks. Banks did
not have efficient collection mechanisms or foreclosure procedures.
• By 2004 it became clear to banks they had been out of a profitable
market, and they entered back aggressively by:
9Undercutting Sofoles in price
9Buying up the largest Sofoles
• Banks will originate approximately USD 7,300 millions of loans in 2007.
17
18
SOFOLES
•
Sofoles were created in 1994 as a result of NAFTA. They are Non-bank
banks similar to mortgage banks in US.
•
They have two basic characteristics :
9 Cannot take deposits from the public.
9 Can only lend to a specific sector: housing, automobiles, education, etc.
•
Since then, Sofoles have successfully been originating and servicing loans
under FOVI & SHF programs:
9 Relatively homogeneous originating and servicing standards, as well as
standardized loan product.
9 Sofoles will originate approximately USD 2,200 million of loans in 2007.
19
FOVI, which was manage by the Central Bank until the creation of
SHF, started funding SOFOLES in 1995.
Collections on
outstanding
portfolio
Central Bank loans
(guaranteed by the
Federal
Government)
World Bank and
IADB
Sofoles
Construction
loans for
homebuilders
and mortgages
for individuals
Fovi’s funding to Sofoles was long term,
fully matched and indexed to minimum
wage inflation. Under the macroeconomic
environment after de “Tequila Crisis” this was the only
source of long term funding for mortgages.
20
SHF started operations in 2002, overtaking the activities of FOV
FOVII
and with a new capacity to get funding from the capital markets.
Local capital
and
international
derivatives
markets
Central Bank
loans
World Bank &
IADB
SHF hedges market and prepayment risk
through debt and derivatives markets
MI is offered to prepare
loans for securitization
Mortgage Insurance
SOFOLES
MORTGAGE
LENDING
SHF funds SOFOLES on a matched funds basis,
absorbing market and prepayment risk
21
Contents
I.
Introduction
II.
Demographic Dynamics, Housing Demand and Financing Needs
III.
The Mexican Mortgage Market including FOVI/ SHF role
IV.
Securitization Model for Mexico and Current Strategy
V.
Challenges ahead in Housing Finance
22
Participation of SHF in the securitization model
SHF does not perform the same activities that Fannie Mae or Freddie Mac: it neither
purchases loan portfolios nor does it issue MBS with its own Guarantee attached.
Instead the SHF:
•
SHF offers Mortgage Insurance covering the first loss of up to 35% of loans,
whether they are part of a pool of an MBS (BORHIS) or not.
•
SHF offers Partial Financial Guarantees to structures that meet certain
requirements. These usually do not cover more than 15% of MBS (BORHIS)
outstanding balance.
•
SHF supports the liquidity of the MBS (BORHIS) by continuously quoting bidask prices (with tight bid-ask spreads) for every issue in the market. All this
activity is channelled through one of the eleven “BORHIS Market Makers”.
However, the goal of SHF is similar that that of the GSEs: to foster the liquidity to the
mortgage markets as a means to promote the affordability of mortgages.
23
How is the market organized to issue MBS (BORHIS)?
=
Mortgage
Insurance
Companies
PREMIUM
Financial Guarantee
Insurance
Company/Mezzanine
Mortgage Insurance
(First loss up to 35%)
Loan + Mtg.Insurance
SOFOL or
BANK
$
Mortgage
PREMIUM
Total or Partial Financial
Guarantee Insurance
and Mezzanine
SPV
(funded and
administered by
private entities)
$
BORROWER
Depends on the
preferences of the issuer,
but Mortgage Insurance
is necessary unless a
100% Financial
Guarantee Insurance on
the MBS exists.
SPV acquires mortgage
portfolios, structures and
issues MBS (BORHIS)
AAAmx rated MBS
(BORHIS)
$
Debt Markets
24
The securitization Model
Two type of structures are being placed in the market.
Mortgage Insurance +
Partial Enhancement
(Partial Financial Guarantee or
Mezzanine Bond)
Full Financial Guarantee Insurance
(without Mortgage Insurance)
Assets
Liabilities
Assets
Liabilities
Mortgage
Portfolio
(100%)
+
Mortgage Insurance
Senior Bond
87%
Mortgage
Portfolio (100%)
Senior Bond
88%
Mezzanine Bond
10%
Equity 3%
Equivalent
to a Partial
Financial
Guarantee
Equity
12%
May be
partially
substituted
by a
Mezzanine
Bond
25
The basic model started with SHF’s providing most products for the
mortgage
-backed securities (MBS) through its role as guarantor and
mortgage-backed
liquidity provider.
Investor and market
maker in initial and
secondary markets
SPV
Financial
Intermediaries
• Banks
• Sofoles
Mortgage
Portfolios
$
L
O
A
N
S
$
MBS
MBS
K
Mortgage
Insurance
Funding for portfolio
accumulation
Partial Credit
Guarantees
Capital Markets
26
SHF has been actively seeking the entrance of private providers of
guarantees. The end-game is a market based system relying on
private providers of financial solutions.
Investor and market
maker in initial and
secondary markets
SPV
Financial
Intermediaries
• Banks
• Sofoles
Mortgage
Portfolios
$
L
O
A
N
S
MBS
Capital Markets
MBS
K
Mortgage
Insurance
$
Financial
Guarantee
Insurance
MI is not the only option available to support mortgage markets,
but SHF thinks it is an obligated reference
•
Mortgage insurance is viewed by SHF as the well-suited mechanism (of those
provided by third parties) to promote a sound mortgage market and the development
of securitization in Mexico.
•
To obtain the insurance, each mortgage has to comply with new standard origination
guidelines that have helped standardize the origination of new mortgages:
9
Credit Score: Borrower must be scored using a proprietary FICO score developed by
Fair Isaac for SHF.
9
Appraisal: The appraisal of houses must follow the appraisal rules issued by SHF and
be conducted by specialized entities licensed also by SHF.
9
Standard Documentation: The documentation in the loan files must follow the origination
policies issued by SHF. Of special importance in this regard is the proof of income.
27
28
Is MI enough?
•
There are at least three options to choose from to foster the
development of a mortgage securitization market:
9 Mortgage
Insurance (MI)
9 Financial
Guarantee Insurance (FGI)
9 Investors
in “mezzanine” and subordinated pieces of MBS.
•
Developing markets for FGI and subordinated pieces of MBS can
accelerate the creation of a liquid MBS market and lower mortgage
rates.
•
These markets should be viewed as very useful complements of MI
when securitization is seen as the best option to channel funds to
mortgage lending.
Mortgage Insurance in Mexico: Facts (1/3)
•
Mortgage Insurance (MI) was introduced by SHF in Mexico on July 2004
with the following characteristics:
¾
First loss with coverage ranging 5 to 35% of outstanding balance on
loans with up to 90% LTVs.
¾
Premium paid by lender on a monthly basis or up-front.
¾
Clear underwriting guidelines used to underwrite every loan (no
delegated underwriting thus far).
¾
Claim may be made after foreclosure or cash-for-keys settlement,
and SHF has the option to pay the claim or buy the loan at par.
¾
Price depends on LTV, tenure of loan and coverage.
29
Mortgage Insurance in Mexico: Facts (2/3)
•
Pricing by SHF of its MI products is such that it:
¾
Covers the operational cost of delivering the insurance;
¾
Accounts for the expected default rate and the severity of loss; and
¾
Delivers a capital return equal to that set by our Board of Directors.
•
In that sense, SHF is striving to set pricing a bit above market terms so
as never to discourage entrance by private insurance providers.
•
Another important feature of our product is the contractual obligation to
pay the claim unless premiums were not paid or there is evidence of
fraud. Making the payment promise unconditional was a necessity in our
market to establish credibility of the product from the start.
30
Mortgage Insurance in Mexico: Facts (3/3)
•
In an effort to promote the development of a competitive MI market, SHF
has actively been seeking the participation of private companies in our
market, with the following results:
¾
Genworth and United Guaranty helped SHF shape MI contracts and
underwriting guidelines of our program.
¾
These companies have reinsured some of the risk underwritten by
SHF through two independent quota-share contracts. The interaction
between SHF and these insurers has meant a great deal of
knowledge transfer taking place both ways.
¾
Genworth and United Guaranty have both expressed interest on
setting up their local insurance company, and are actively discussing
with regulators the prudential set of rules under which the business
would operate.
31
The reaction of the local market towards MI
•
It is fair to say that without the full support of SHF and financial authorities, it
would not have been possible to introduce MI in Mexico at this stage of
development.
•
SHF believes that now investors would seriously question MBS transactions
without MI unless they are enhanced by relatively large junior tranches (with a
shallow market for them) or by “full-wraps”.
•
Pricing and operational issues (mainly regarding the underwriting of mortgage
portfolios) still need to be sorted out between Sofoles and MI providers
(including SHF) before these specialized lenders embrace the product.
•
To the extent that securitization becomes the main source of funds for banks –
something that should happen over the next two to three years - MI will be
demanded by them as well.
32
Regulatory framework, a difficult balancing act
•
•
So far, SHF has been offering its MI product without a clear prudential
framework around it. However, this should change soon:
¾
The Insurance Law was amended in April 2006 and MI is now a
recognized product in the legislation so that only specialized monoline
insurance companies licensed by the Ministry of Finance may offer the
product.
¾
The Insurance Commision and the Ministry of Finance discussed at
length with SHF, Genworth and United Guaranty the draft regulation for
MI, which was published towards the end of 2006.
On the other hand, banks are offered capital relief of 50% on loans carrying
valid MI, and MBS backed by portfolios with MI also get a capital relief of at
least 50%. Banking authorities are now drafting the regulation that would be
enacted this year under Basel 2, keeping the capital relief in place.
33
34
Fostering Mortgage Insurance in Mexico
Banks, Sofoles
and Pools of
Loans
1.
2.
3.
Mortgage
Insurers
Mortgage
Reinsurers
SHF
Specialized
International
Reinsurers
Private MI
Companies
AHF
Short Term: SHF offers MI, looking for reinsurance with specialized international
insurance companies.
Medium Term: Private insurance companies, including affiliates of international firms,
offer cover for residential and medium segments of the market, while SHF offers cover
for social housing and special risks not covered by private monoliners.
Long Term: Private MI companies offer cover for all market segments, SHF offers
reinsurance taking those risks private entities are not willing to hold.
MI Closing comments (1/2)
•
Judging from the Mexican experience, full support from financial authorities
is needed before MI may thrive in an emerging market.
•
The participation of private MI companies in the market will greatly facilitate
the creation of the legal and operational infrastructure required, and will also
be very valuable for promoting the advantages of MI with lenders, investors
and rating agencies.
•
Basel II is an excellent excuse to introduce the right incentives for lenders to
undertake MI.
•
MI may be easier to introduce in a market where the securitization of
portfolios is (or is bound to be) the main source of funds for the mortgage
industry.
35
MI Closing comments (2/2)
•
•
Government intervention to “kick-start” the MI industry and entice the
entrance of private companies is key, but authorities should be mindful of:
¾
Delineating the exact role government agencies involved in the
mortgage market play, and
¾
Setting a clear exit strategy from the market place, most likely
differentiating among market segments.
There are some other issues that need to be addressed before private MI
companies feel comfortable enough. We have found of particular
importance appraisal standards and strong enough statistical evidence on
portfolio performance.
36
Evolution of the housing finance system for construction loans
Investors
Investors
Debt
Debt // Capital
Capital
SPV
SPV
•• PCG
PCG SHF
SHF
•• PCG
PCG IFC
IFC
•• Mezzanines
Mezzanines
•• FW
FW Ambac
Ambac yy FSA
FSA
Crédito
Crédito
SHF
SHF
Banks
Banks
PCG
PCG SHF
SHF
2002
2002
2004
2004
2006
2006
Private
Private funds
funds
SOFOL
SOFOL
Developers
Developers
37
Evolution of the housing finance system for individual mortgages
Deposits
Deposits
Banks
Banks
BORHIS
BORHIS
BORHIS
BORHIS
Investors
Investors
MI
MI
MI SHF
SHF
MI Genworth
Genworth
PCG
IFC
y
SHF
PCG IFC y SHF FW
FW AMBAC
AMBAC YY FGIC
FGIC
SHF
SHF
SOFOLES
SOFOLES
FOVISSSTE
FOVISSSTE
Mandatory
Mandatory
contributions
contributions
Cofinancing
Cofinancing
CEDEVIS
CEDEVIS
2002
2002
2004
2004
2006
2006
Mezzanines
Mezzanines
INFONAVIT
INFONAVIT
Cofinancing
Cofinancing
Individual
Individual
Mortgages
Mortgages
38
Mortgages originated yearly by the private sector
39
260,000*
206,894
103,478
102,843
71,877
55,871
2002
2003
2004
2005
2006
2007
*Estimated
40
Number of mortgages securitized yearly by the private sector
60,000*
34,857
9,562
8,359
1,979
2002
2003
2004
2005
2006
Oct-2007
*Estimated
The number of participants in securitizations has steadily
increased, first Sofoles, then Banorte was the first bank to
securitize at the end of 2006. Two more banks are issuing MBS
Bancomer
in 2007.
HSBC
Banorte
CyC
Patrimonio
ING
FINCASA
Banorte
CyC
Patrimonio
ING
FINCASA
GMAC (Patrimonio)
GMAC (CyC)
GMAC Patrimonio)
GMAC (CyC)
GMAC Patrimonio)
GMAC (CyC)
Metrofinanciera
GMAC (HIPNAL)
Metrofinanciera
GMAC (HIPNAL)
Metrofinanciera
GMAC (HIPNAL)
Metrofinanciera
GMAC (HIPNAL)
GMAC
Su Casita
GMAC
Su Casita
GMAC
Su Casita
GMAC
Su Casita
GMAC
Su Casita
2003
2004
2005
2006
2007
41
42
The RMBS market, just born on Dec-2003, will represent 30% of
funding sources for private lenders in 2007 and should become the
main source of funds for mortgages sometime in 2009.
Monto Acumulado en Millones USD
1,730
BORHI's OTRAS CEDEVI's
317
1,039
3,403
55
2003
1,732
181
310
484
574
2004
2005
2006
*Exchange rate used for conversion = 11 MXP/USD.
2007
43
To finance such volumes of credit it is necessary to promote an
efficient market for mortgage backed securities.
Monto en Millones USD
BORHI's
691
OTRAS CEDEVI's
317
555
1,672
1,157
55
2003
302
181
255
265
2004
2005
2006
2007
Credit enhancements provided by private entities have rapidly
developed after a few successful transactions enhanced by SHF or
the IFC.
Credit Enhancer (million USD)
2,200
2,100
2,000
1,900
Prepayment with excess spread (Buil Up)
1,800
1,700
Full Wrap
1,600
1,500
1,400
1,300
SHF's Financial Guarantee
1,200
Partial Financial Guarantee
1,100
1,000
900
800
Mezanine
700
600
500
400
300
200
100
-
2003
2004
2005
2006
2007
44
45
BORHIS offer very attractive yields to Foreign Investors ….
YTM: BORHIS* vs. “Mexican Government Real Rate Benchmark”, “TIP’s + EMBI+”, TIP’s
(Dic-2003 – YTD)
6.0%
5.0%
4.57%
4.0%
3.49%
3.36%
3.0%
2.0%
BORHIS*
UDIBONOS**
TIP's 20 yr + EMBI+
TIP's 20 yr
TIP's 10 yr + EMBI+
TIP's 10 yr
Dic-06
Oct-06
Ago-06
Jun-06
Abr-06
Feb-06
Dic-05
Oct-05
Ago-05
Jun-05
Abr-05
Feb-05
Dic-04
Oct-04
Ago-04
Jun-04
Abr-04
Feb-04
Dic-03
1.0%
2.35%
*Weighted Average YTM (calculated, at each time, with the outstanding amount of each issue). Source: VALMER; Mexican
Price Vendor.
**Government Real Rate Benchmark (with similar duration to that of the BORHIS).
TIP’s = Treasury Inflation Protected Bonds; EMBI+ = Emerging Markets Bond Index (Mexico).
Today there are 11 Market Makers participating in SHF’s program
to foster the liquidity of BORHIS in the secondary market.
SHF acts through these institutions, and quotes prices both ways on every
security at very tight margins throughout the day.
46
Though Borhis are a reletively new product in the mexican
market, the demand for these type of Bonds has consolidated….
6
5.1
5.17
4.83
Relación Demanda-Oferta
5
4.58
3.13
4
3.00
3.3
3.12
3
4.25
3.5
4.13
4.14
3.68
3.2
3.52
3.65
3.5
3.33
3.1
2.93
2.88
3.17
2.65
2.31
2.13
2.10
2
4.8
4.78
2.43
2.35
2.1
2.0
1.8
1.20
1
I II
I sa rte a I ra ) C C ra ) der II III
I
2
1
a)
1 IV
II I O III
4
5
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A A ION TR TR ON RO S IT MA MA IT A S R O S IT S IT S IT ERI CA GM Cas mon y C Ban Cas pe r GM HS pe rt s Bo on onio pe rt MA S B
S
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47
48
Contents
I.
Introduction
II.
Demographic Dynamics, Housing Demand and Financing Needs
III.
The Mexican Mortgage Market including FOVI/ SHF role
IV.
Securitization Model for Mexico and Current Strategy
V.
Challenges ahead in Housing Finance
Housing finance has benefited from a host of reforms that took
place over the last decade.
•
Stabilization programs based on prudent fiscal and monetary policies made
inflation and interest rates decrease sharply over the last 10 years.
•
Social security reform introducing defined contribution plans based on
personal accounts managed by private pension funds, fostered long term
savings as well as demand for long term & long duration securities.
•
The creation of a long-term yield curve for government securities enabled the
pricing of fixed-rate mortgage products.
•
The reform of sate-level civil codes enabled the sale and purchase of
mortgage portfolios without over-burdensome requisites.
•
Reforms of federal laws that enabled a more efficient recovery of guarantees.
49
Inflation reduction and the development of a yield curve for
peso securities have been instrumental to housing finance.
Inflation and Interest Rates on Government Securities
(Year-End)
30%
25%
20%
Rate on 3 Yr Peso Sec.
15%
10%
Rate on 10 Yr Peso Sec.
Inflation
5%
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
19
96
0%
50
51
SHF´s strategy for the future
The institutional strategy is focused in the satisfaction of Mexican
families housing needs:
1. Promote major affordability to residential mortgage financing
to the current attended population.
2. Promote affordability to residential mortgage financing in the
non attended population (less than 5 MW) through SHF´s
aggressive strategies.
3. Promote an adequate offer of urban land for social housing.
The spread between the final borrower and the risk free rate can be52
greatly reduced to match some more efficient international standards.
Tasas fijas expresadas en la moneda de cada país a los plazos señalados (tasas nominales)
Margen:
Plazo:
8.50%
15
6.22%
25
5.71%
25
5.24%
20
2.46%
5
1.47%
15
5.07%
20
2.25%
20
1.50%
10
0.61%
10
3.60%
10
1.60%
30
1.53%
30
3.53%
20
20%
18%
Tasa Hipotecaria
16%
Tasa Libre de
Riesgo
14%
12%
10%
8%
6%
4%
2%
0%
Colombia
Mexico
Costa Rica
America Látina
Chile
Canada
Estados
Unidos
Norteamérica
Inglaterra
España
Dinamarca
Europa
Alemania
Nueva
Zelanda
Australia
Corea
Sudáfrica
Asia y Ocenia
Fuentes: Bancos Centrales de todos los países y Bancos Internacionales: HSBC, Santander, BBVA, Citigroup y Standard Bank
(Sudáfrica). El plazo está expresado en años al vencimiento
Margen: Diferencia entre Tasa Hipotecaria y Tasa Gubernamental de Similar Duración (Tasa libre de Riesgo)
Africa
53
SHF is promoting standardization trough larger size issuances
Size of Borhis-UDIS issuances in Millions of pesos
Serie A
Serie B
18,241,833,613.45
826,485,838.62
Total
1,065
899
Me tro fin a n c ie ra V
G MAC VI FW
63
3,086
Cré d ito y Ca s a I
G MAC V FW
FINCAS A
ING Co me r Ame r
S u Ca s ita V
S u Ca s ita IV
S u Ca s ita III
Me tro fin a n c ie ra IV
Cré d ito y Ca s a I
G MAC IV
G MAC III
S u Ca s ita I
Me tro fin a n c ie ra III
G MAC II
Me tro fin a n c ie ra II
Me tro fin a n c ie ra I
670
505
59
623
719
926
991
493
70
104
111
Serie B
Crédito y Casa has reached the greatest total
amount acumulated with Fungible Borhi.
494
499
506
506
The issuances Series A in average are of
817 mpd, while the Series B (in average) are
of 118 millions of pesos which equivalent to
1,073
1,170
G MAC I
-
Serie A
81
542
526
672
688
S u Ca s ita /G MAC II
S u Ca s ita /GMAC I
338
993
P a trimo n io I
4.81% of Series A.
596
500
1,000
1,500
2,000
Millions
2,500
3,000
3,500
4,000
54
Information for investors should improve in quality and availabi
lity as
availability
volume grows: the Bloomberg example*
Description
of the issue
GMAC
8
Metrofinanciera
8
Su Casita
9
Crédito y Casa
8
ING-Comercial América
8
Fincasa
8
Patrimonio
8
Banorte
8
HSBC
9
Trustee
1
2
3
4
5
6
7
8
9
Calculator
8
8
8
8
8
8
8
8
9
Description
of the issue
9
1 CSFB
8
2 IXE
9
3 ING
8
4 Banamex
8
5 ING-Deutsche Bank
8
6 IXE-Deutsche
9
7 ING-Barclays
8
8 Santander-Barclays
8
9 HSBC
9
10 INVEX
Placement Agent
Calculator
8
8
8
8
8
8
8
8
8
9
SHF is working with the banking and securities commission to issue changes in the
regulation to standardize content, format, quality and opportunity.
* There are only some issues for Su Casita in Bloomberg, for HSBC there are calculators and descriptions.
55
However, cheaper funding coming from the market (compared to that
of SHF) has not yet translated into cheaper products for the consumer
at the lower end of the income spectrum.
The process is long, more than 28 months in average
Current
Model
Government rate +
SHF Spread
Borrower
Requests
Loan
Sofol
Requests
Funding
Provides Funding
Sofol
Sofol
Originates
Loan
Securitization
Accumulates
Mortgages
If the market
conditions make it
advantageous
56
Securitization market should be a continuous and reliable
source of funds for mortgage originators.
Securitization should prove to be:
a) A continuous source of liquid and safe funding from the capital markets.
b) An accessible market with known and executable interest rate that allows
to eliminate the market risk between credit origination and its securitization.
Today it takes, in average, about 35 months between these two events.
Hipotecaria Total is a company that will sell securitization services to mortgage
originators. Its value proposition is to achieve a) and b) above.
SHF will continue pursuing its two projects aimed at streamlining
the process to securitize as soon after origination as possible:
•
Issuance of “Fungible BORHIS” of which two already took place in 2006.
•
Launch of HiTo, a company
offering
services
to
streamline the process from
loan
origination
to
securitization of portfolios.
Finance & Economics
Mortgages
A Danish model in Aztec dress
Jan 4th 2007
From The Economist print edition
One of the world's most robust mortgage systems may
be exported to Mexico and other emerging markets
…some economists have touted the Danish approach as an ideal model
for emerging-market mortgages. Mexico is about to become the first
country to give it a try…
57
58
Building a framework for Covered Bonds in Mexico
•
CBs are highly rated instruments: however, while their ratings are comparable
to those of government and agency bonds, they offer a somewhat higher yield.
•
CB holders benefit from a dual claim, first against the issuer of the bonds,
typically a regulated bank, and also against the cover assets which are
refinanced by the bonds. Retained assets: preserved margin and the
commercial relationship with borrowers.
•
As a different asset class, CBs adds value to local and global fixed income
capital markets.
•
CB rating is higher than unsecured debt (thanks to the underlying assets) and
represent an alternative funding source for credit institutions.
59
Despite the growth of the mortgage market, almost half of the
population is still not served by the existing mechanisms.
Market Segmentation by Income and Labor Condition
(Percentage of households living in urban areas)
Households with
Social Security
Households
without Social
Security
5.89%
16.29%
10.45%
14.09%
23.68%
17.27%
5.66%
6.67%
6 to 9
9 and more
0 to 3
3 to 6
Monthly Income (Number of Minimum Wages)
Underserved Market
INFONAVIT / FOVISSSTE
Sofoles / Banks
SHF is promoting more accessibility in the unserved mortgage
market by aggressive strategies.
•
The Federal Government has implemented a national subsidy
program targeted to low income families (below 5 minimum wages).
•
The subsidy is larger as family income decreases. The subsidy is
designed to attract private market participants to grant a mortgage loan
along with the subsidy and it also makes use of the existing MI
products.
•
The amount of the subsidy increases if the mortgage loan is used for
buying existing homes in an attempt to promote secondary markets for
houses.
60
SHF is promoting more accessibility in the unserved mortgage
market by aggressive strategies.
In 2006 SHF funded 3,327 microcredits for home improvement. The goal
for 2007 is to grant at least 20,000 microcredits, up to the end of October
there has been 17,555 granted.
# créditos
•
900
800
700
600
500
400
300
200
100
0
Microcréditos para mejoramiento fondeados
en 2006
Total 3,327
ENE FEB MAR ABR MAY JUN JUL AGO SEP OCT NOV DIC
61
Promote an adequate offer of urban land for social housing.
•
The main obstacle for having social housing is the shortage of urban
land for this purpose.
•
Government intervention, at the three different levels, plus private
participation is a necessary condition to solve this problem.
•
Today the developers provide the urban infrastructure needed for the
projects and this system is less efficient, from the urbanistic and
financial view, that if urban infrastructure is provided with an integral
long term view of the cities.
•
The quality of life will improve if there exists better planning and
execution of urban infrastructure including housing, demand for labor,
communications, water systems, etc.
62
Promote an adequate offer of urban land for social housing.
Estado de
Jalisco
Tlalnepantla
Cuautitlán
Estado de
México
Land is aggregated
among different owners to
have a centralized project
for land development
Government entities
commit to provide the
needed permits, licenses
and support for the
projects
Land is
developed and
sale to housing
developers
e intermediarios
privados
Houses are sell under
conforming
requirements.
The objective is to
produce a profitable
market for social
housing under
sustainable urban
development.
63
64
The International Experience:
Housing Finance in Mexico
Evolution, Strategy and Challenges Ahead
Thanks for your time!!!
Any questions???
Contact information:
Jorge Galindo-Flores
[email protected]
Housing Finance International Conference
Promoted by Banco Central do Brazil
November 7-9, 2007, Salvador, Brazil