agosto de 2015 mortgage market in mexico. 2 i.introduction ii.demographic dynamics, housing demand...

19 de abr de 2023

Mortgage Market in MexicoMortgage Market in Mexico

2

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. Pension Funds & BORHIS

VI. Low-Income Mortgage Alternatives

VII. Challenges ahead in Housing Finance

ContentsContentsContentsContents

3

SHF: SHF: Mandate & activities, Mission & VisionMandate & activities, Mission & VisionSHF: SHF: Mandate & activities, Mission & VisionMandate & activities, Mission & Vision

SHF was created in 2001 as a government financial institution oriented to foster the development of the primary and secondary mortgage markets.

As a Mortgage bank: SHF grants long term financing to financial intermediaries and covers their interest rate risk. SHF does not lend directly to individuals.

As a Guarantor: 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 housing financing.

Mission: Lead the development of a competitive market in order to allow all Mexicans be able to acquire a residence.

Vision: To be an innovative institution in solutions to develop social housing.

4

I. Introduction








5

Over the next 25 years, the number of households will grow at an Over the next 25 years, the number of households will grow at an annual rate of 2% and the year of 2012 will have the larger number of annual rate of 2% and the year of 2012 will have the larger number of household formation.household formation.

Over the next 25 years, the number of households will grow at an Over the next 25 years, the number of households will grow at an annual rate of 2% and the year of 2012 will have the larger number of annual rate of 2% and the year of 2012 will have the larger number of household formation.household formation.

Mill

ion

Hou

seho

lds

Number of Households in Mexico

From 2000 to 2030 the number of households in Mexico will grow 83%. These favorable population dynamics is coupled with an annual per capita income of approximately USD $9,500*

4.8

9.8

22.8

41.8

0

5

10

15

2025

30

35

40

45

1940 1970 2000 2030 e/

/* PPP Methodology/* PPP Methodology

Source: CONAPOSource: CONAPO

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.

691

636

667

36.3

25.5

600 610 620 630 640 650 660 670 680 690 700

Th

ou

sa

nd

s o

f N

ew

H

ou

se

ho

lds

20

22

24

26

28

30

32

34

36

38

Mill

ion

of H

ou

seh

old

s

New Households Total Number of Households

Population by Age Groups in 2004

Source: CONAPO

6

Source: INEGI.

Housing DemandHousing DemandHousing DemandHousing Demand

In Mexico, there are 26.7 million families of which:

17.2 million already have an adequate house.

9.4 million families do not have an adequate house and haven’t been attended yet.

Annually, around 500,000 new families are generated, of which approximately 60% are in conditions of demanding a mortgage loan.

In addition to the families that do not have an adequate house, there are 4 components that together generate the annual housing demand.

Component Number of Houses %New Families 299,977 25.8%

Families without a House 765,113 65.9%Families demanding a Better House 71,565 6.3%

Families who are Granted a Loan after a Former Rejection 22,724 2.0%Total 1,159,379 100.0%

Estimation of the Housing Demand in 2008

7

I II III IV V VI VII VIII IX X

2000 $462 $793 $1,080 $1,376 $1,708 $2,135 $2,677 $3,407 $4,934 $12,5262006 $791 $1,177 $1,382 $1,742 $2,050 $2,388 $3,085 $3,805 $5,084 $11,330

Total Change $329 $384 $301 $366 $342 $253 $408 $398 $150 -$1,196% Change 71.1% 48.5% 27.9% 26.6% 20.1% 11.8% 15.3% 11.7% 3.0% -9.6%

0 10 20 30 40

0-4.3

4.3-6.5

6.5-8.6

8.6-12.9

12.9-17.2

17.2-21.5

21.5-25.8

25.8-30.1

30.1-34.4

34.4 and more

2006

2000

Source: INEGI.

A gradual increase of the middle class is expected. This will allow a strengthening of the housing demand from financially healthy families.

Between the year 2000 and 2006, the percentage of families that received more than 12.9 dollars a day increased from 72.8% to 80.2%.

The low income sectors are the ones that have experienced greater increases in their income per family between the years 2000 and 2006.

Housing Demand: Strengthening of the Middle ClassHousing Demand: Strengthening of the Middle ClassHousing Demand: Strengthening of the Middle ClassHousing Demand: Strengthening of the Middle ClassDISTRIBUTION OF FAMILIES ACCORDING TO THEIR

INCOME (%)

In 2006, 80.2% of the families received more than 12.9 dollars a day

STRENGTHENING OF THE PURCHASING POWER OF THE LOW AND MIDDLE CLASSES Quarterly Income per Family (Dollars)

Dolla

rs E

arne

d pe

r Day

8

Even under very conservative assumptions, SHF estimates that the residential mortgage portfolio will grow from USD $80,724 millions in 2007 to USD $338,300 millions 2020.

The flow of financial savings available in the country will not be sufficient to finance the growth of mortgage portfolios. The sale of mortgage portfolios to domestic institutional investors as well as foreign investors is an absolute must to maintain the growth of the mortgage sector.

Demographic dynamics: a challenge and opportunity in Demographic dynamics: a challenge and opportunity in the mortgage marketthe mortgage marketDemographic dynamics: a challenge and opportunity in Demographic dynamics: a challenge and opportunity in the mortgage marketthe mortgage market

To attend the growing demand of mortgage loans in the following years, it was necessary to develop a Residential Mortgage Backed Securities market. To attend the growing demand of mortgage loans in the following years, it was necessary to develop a Residential Mortgage Backed Securities market.

MORTGAGE PORTFOLIO IN MEXICO

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2006200720082009201020112012 2013201420152016201720182019 2020

Mil

lio

n D

oll

ars

INFONAVIT and FOVISSSTE SOFOLS and Banks

Cumulative Annual Growth Rate : 10.1%

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.

ACCUMULATED NET FLOW NEEDED TO FINANCE MORTGAGE LOANS

2006 Billion Pesos

0

500

1000

1500

2000

2500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Private Mortgages Siefores Savings Savings from banks

9

I. Introduction








10

INFONAVIT + FOVISSSTE75%

BANKS andSOFOLS

Own Funding20%

SOFOLS SHF Funding

5%

SOFOLS FOVI Funding

13%

BANKS3%

INFONAVIT + FOVISSSTE

84%

20062002

Mortgages by Financing Source

About ¾ of loan originations still do not involve a private intermediary undertaking at least part of the risk inherent to 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.

About ¾ of loan originations still do not involve a private intermediary undertaking at least part of the risk inherent to 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.

Total 675,041 LoansTotal 675,041 LoansTotal 341,939 LoansTotal 341,939 Loans

The industry is still dominated by the two Federal Housing Funds, The industry is still dominated by the two Federal Housing Funds, INFONAVIT and FOVISSSTE.INFONAVIT and FOVISSSTE.The industry is still dominated by the two Federal Housing Funds, The industry is still dominated by the two Federal Housing Funds, INFONAVIT and FOVISSSTE.INFONAVIT and FOVISSSTE.

11

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

INFONAVITINFONAVITINFONAVITINFONAVIT

* MW= usd$ 148.4 per month

12

Similar to the objective and sources of funding from 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.

FOVISSSTEFOVISSSTE FOVISSSTEFOVISSSTE

13

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:

Undercutting Sofoles in price

Buying up the largest Sofoles

Banks originated approximately USD 7,300 millions of loans in 2007.

BANKSBANKS

http://espanol.istockphoto.com/file_closeup/object/4380715_moving_up.php?id=4380715

14

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 : Cannot take deposits from the public. 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:

Relatively homogeneous originating and servicing standards, as well as standardized loan product.

Sofoles will originate approximately USD 2,200 million of loans in 2007.

SOFOLESSOFOLESSOFOLESSOFOLES

15

Construction loans for

homebuilders and mortgages for individuals

Sofoles

Collections on outstanding

portfolio

World Bank and IADB

Central Bank loans (guaranteed by the

Federal Government)

FOVI, which was manage by the Central Bank until the creation of FOVI, which was manage by the Central Bank until the creation of SHF, started funding SOFOLES in 1995.SHF, started funding SOFOLES in 1995.FOVI, which was manage by the Central Bank until the creation of FOVI, which was manage by the Central Bank until the creation of SHF, started funding SOFOLES in 1995.SHF, started funding SOFOLES in 1995.

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.

16

Local capital and

international derivatives

markets

World Bank & IADB

MORTGAGE LENDINGSOFOLES

SHF funds SOFOLES on a matched funds basis, absorbing market and prepayment risk

SHF hedges market and prepayment risk through debt and derivatives markets

Mortgage Insurance

SHF started operations in 2002, overtaking the activities of FOVI but SHF started operations in 2002, overtaking the activities of FOVI but with a new capacity to get funding from the capital markets.with a new capacity to get funding from the capital markets.SHF started operations in 2002, overtaking the activities of FOVI but SHF started operations in 2002, overtaking the activities of FOVI but with a new capacity to get funding from the capital markets.with a new capacity to get funding from the capital markets.

Central Bank loans

MI is offered to prepare loans for securitization

17

I. Introduction








18

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 bid-ask 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”.

Participation of SHF in the securitization modelParticipation of SHF in the securitization model

However, the goal of SHF is similar that of the GSEs: to foster the liquidity to the mortgage markets as a means to promote the affordability of mortgages.

SHF does not perform the same activities that Fannie Mae or Freddie Mac: it neither purchases loan portfolios nor does it issue MBSs with its own Guarantee attached. Instead:

19

How is the market organized to issue MBS (BORHIS)? How is the market organized to issue MBS (BORHIS)?

SOFOL or BANK

Mortgage Insurance

Companies

Loan + Mtg.Insurance

BORROWER

SPV(funded and

administered by private entities)

Mortgage Insurance (First loss up to 30%)

SPV acquires mortgage portfolios, structures and issues MBS (BORHIS)

Financial Guarantee Insurance

Company/Mezzanine

Total or Partial Financial Guarantee Insurance

and MezzaninePREMIUM

Mortgage $

$

AAAmx rated MBS (BORHIS)

$

PREMIUM

Debt Markets

Depends on the preferences of the issuer, but Mortgage Insurance is necessary unless a 100% Financial Guarantee Insurance on the MBS exists.

=

20

May be partiallysubstituted by aMezzanineBond

Equity 3%

Two type of structures are being placed in the market.

Assets

MortgagePortfolio(100%)

+ Mortgage Insurance

Assets

Mortgage Portfolio (100%)

Liabilities

Senior Bond87%

Liabilities

Senior Bond88%

Mezzanine Bond10%

Mortgage Insurance + Partial Enhancement

(Partial Financial Guarantee orMezzanine Bond)

Full Financial Guarantee Insurance(without Mortgage Insurance)

Equivalentto a PartialFinancialGuarantee

Equity 12%

The securitization Model The securitization Model

21

$

$

Mortgage Insurance

Capital Markets

Financial Guarantee Insurance

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.

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.

LOANS

Financial

Intermediaries•Banks•Sofoles

MBS

K

MBS

Mortgage Portfolios

SPV

Investor and market maker in initial and secondary markets

22

MetrofinancieraGMAC (HIPNAL)

2004

GMACSu Casita

GMACSu Casita


GMAC (Patrimonio)GMAC (CyC)

GMACSu Casita


GMAC Patrimonio)GMAC (CyC)

Banorte CyC

PatrimonioING

FINCASA

2005 2006

The number of intermediaries participating in securitizations is also higher every year.

In 2007, 3 banks have already securitized their mortgages, and we expect this number to keep growing.

GMACSu Casita



Banorte CyC

PatrimonioING

FINCASA

2007

HSBC

The number of participants in securitization has steadily increased, first The number of participants in securitization has steadily increased, first Sofoles, then banks by 2006 started to have an important participationSofoles, then banks by 2006 started to have an important participationThe number of participants in securitization has steadily increased, first The number of participants in securitization has steadily increased, first Sofoles, then banks by 2006 started to have an important participationSofoles, then banks by 2006 started to have an important participation

Bancomer

GMACSu Casita



Banorte CyC

PatrimonioING

FINCASA

2008

HSBC

Bancomer

Scotiabank

23

Securitizing mortgages has proven to be a successful mechanism to Securitizing mortgages has proven to be a successful mechanism to originate mortgages recurrently and at competitive ratesoriginate mortgages recurrently and at competitive ratesSecuritizing mortgages has proven to be a successful mechanism to Securitizing mortgages has proven to be a successful mechanism to originate mortgages recurrently and at competitive ratesoriginate mortgages recurrently and at competitive rates

Amount (Million USD)

IssuancesSecuritized Mortgages

1,263 12 49,326 950 13 30,926 260 5 8,359 250 3 9,562

54 1 1,979 2,777 34 100,152

777 3 10,025 186 1 3,931 - - - - - - - - - 963 4 13,956

312 3 7,927 - - - 312 3 7,927

4,052 41 114,108 Total

Non-bank institutions (SOFOLES)

Banks

Other Types of Issuances (Cross Border, BORHIs Repackaging, HiTo Bonds)

Subtotal

Subtotal

20072006200520042003

2007

Subtotal

2007

2006200520042003

Through 2007, we have witnessed important progress on the issuance of mortgage backed securities:

On 2007, $2,352 million USD were securitized, representing an increase of 107% of the amount observed in 2006.

And also on 2006, banks started working towards securitizing their mortgage portfolios, managing to account for 33% of the issuance of BORHIs in 2007.

Years Amount

(million USD) Issuances

Securitized Mortgages

2003 54 1 1,979 2004 250 3 9,562 2005 260 5 8,359 2006 1,136 14 34,857 2007 2,352 17 59,351 Total 4,052 40 114,108

Total MBS issuance per year

24

Issuances increased their individual volume, averaging around $131 million USD in 2007.

On 2007, the average size of issuances also increased, making BORHIs a On 2007, the average size of issuances also increased, making BORHIs a more appropriate instrument for institutional investorsmore appropriate instrument for institutional investorsOn 2007, the average size of issuances also increased, making BORHIs a On 2007, the average size of issuances also increased, making BORHIs a more appropriate instrument for institutional investorsmore appropriate instrument for institutional investors

Average per issuance (million USD)

-

20

40

60

80

100

120

140

2003 2004 2005 2006 2007

Year

Average per issuance (million

USD)

% of increase

2003 54 141%2004 83 57%2005 52 151%2006 81 61%2007 131 0%

74 177%Average 2003-2006

25

BORHIS offer very attractive yields to Foreign Investors: BORHIS offer very attractive yields to Foreign Investors:

*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).

YTM: BORHIS* vs. “Mexican Government Real Rate Benchmark”, “TIP’s + EMBI+”, TIP’s(Dic-2003 – YTD)

4.50%

3.59%

3.35%

2.23%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Dic

-03

Fe

b-0

4

Ab

r-0

4

Ju

n-0

4

Ag

o-0

4

Oct-

04

Dic

-04

Fe

b-0

5

Ab

r-0

5

Ju

n-0

5

Ag

o-0

5

Oct-

05

Dic

-05

Fe

b-0

6

Ab

r-0

6

Ju

n-0

6

Ag

o-0

6

Oct-

06

Dic

-06

Fe

b-0

7

Ab

r-0

7

Ju

n-0

7

Ag

o-0

7

BORHIS* UDIBONOS** TIP's 20 yr + EMBI+

TIP's 20 yr TIP's 10 yr + EMBI+ TIP's 10 yr

By the end of 2007, Borhis mantained the same YTM in average.

26

Today there are 11 Market Makers participating in SHF’s program to foster the liquidity of BORHIS in the secondary market.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.

27

FIXED RATE PESO POOL OF MORTGAGES SECURITIZATION

Mortgage Portfolio

87%Senior

security

3% Subordinated

Security

25%First Loss

Mortgage Insurance

Average rate on mortgage portfolio

Servicing Fee

P&C and Life insurance + structuring and

securitization costs

Funding rate for MBS

14.00%

1.25%

0.85%

1.10%

8.34%

2.29%

MI

Excess Spread

+

-

-

-

-

=

There is a lot of room for efficiencies being translated into more affordable mortgages.There is a lot of room for efficiencies being translated into more affordable mortgages.

10% Mezzanine Piece

Mezzanine0.17%-

28

The BORHIs market is still on its early stages, so it is important to The BORHIs market is still on its early stages, so it is important to correct and adjust some aspects in order to improve its efficiencycorrect and adjust some aspects in order to improve its efficiencyThe BORHIs market is still on its early stages, so it is important to The BORHIs market is still on its early stages, so it is important to correct and adjust some aspects in order to improve its efficiencycorrect and adjust some aspects in order to improve its efficiency

Some aspects must be strengthened to continue providing this market with dynamism, sustained growth and security for the investor.

Homologation and standardization of the periodic information reported by servicers and trustees, aiming to add transparency to the analysis and monitoring of the structures.

Value the bonds in terms of prices instead of rates to provide simplicity to their valuation.

Establish a standardized public calculator to price the structures.

Make structures homogeneous.

Adjust the rules that define the characteristics of BORHIs to line up the incentives and distribution of risks between participants.

Adjust the operation rules of market makers.

29

We have worked to generate a great variety of types of BORHIs with the objective of attracting different investors through diverse tranches.

Likewise, SHF participated in the creation of Hipotecaria Total (HiTo), a company that allows the securitization of mortgages at real time, in a similar way as the Danish model.

We are supporting Covered Bonds as another securitization option.

These schemes offer different options for both, investors and issuers.

In order to satisfy the demand of institutional investors and widen In order to satisfy the demand of institutional investors and widen the range of BORHIs available, different types of issuances have the range of BORHIs available, different types of issuances have been promoted:been promoted:

In order to satisfy the demand of institutional investors and widen In order to satisfy the demand of institutional investors and widen the range of BORHIs available, different types of issuances have the range of BORHIs available, different types of issuances have been promoted:been promoted:

30

I. Introduction




V. Pension Funds & BORHIS|




31

Mexico Pension Funds SystemMexico Pension Funds SystemMexico Pension Funds SystemMexico Pension Funds System

IndividualPension Fund

Account* PRIVATE EMPOYER

PUBLICEMPOYER

AFORES

Pension administrator

SIEFORES

Pension Investment Fund

$

$$$

Invests Pension Funds

Regulated by CONSAR who defines investment policies

* Mexican pension funds have an investment portfolio of around $79,000 Million USD (8.21% of the GDP in Mexico)

32

SIEFORES & BORHIS: matching necessitiesSIEFORES & BORHIS: matching necessitiesSIEFORES & BORHIS: matching necessitiesSIEFORES & BORHIS: matching necessities

One of the aim objectives of the SIEFORES is to invest the income of pension funds in order to obtain the best returns with financial instruments that comply with the regulator investment policies.

Taking into account that pension funds look for a long term basis investment, there is a need for long term financial instruments to match the necessities of the pension saving accounts.

The regulator of SIEFORES establishes strict conditions for the type of financial instruments that could comply with the pension funds portfolio.

BORHIS are an attractive investment option for SIEFORES in terms of:

Risk Level

Term

Quality of the bond & bond underlying

Timing of the issuances

33

SIEFORES & BORHIS: matching necessitiesSIEFORES & BORHIS: matching necessitiesSIEFORES & BORHIS: matching necessitiesSIEFORES & BORHIS: matching necessities

The 70% of BORHIS investors is distributed within SIEFORES, Banks and stock exchange specialists.

The participation of BORHIS within the SIEFORES portfolio represents the 1.7%

BORHIS HOLDERS

37%

15%19%

20%

7% 2%

SIEFORES BANKS

SHF Stock Exchange specilists

INSURANCE CO Others

Although the participation of BORHIS in the SIEFORES portfolio is important, the % of such bonds is limited.

SHF is working together with CONSAR to increase the % of participation of MBS.

34

I. Introduction








35

This has traduced into an increase of the housing supply and demand, as well as of mortgage loans. However, the main beneficiaries have been the formal workers. The housing supply for informal and/or low-income workers is still too limited.

1 Source: Softec, “Mexican Housing Overview 2006”2 Source; Softec, “Mexican Housing Overview 2006” and figures from SHF

New mechanisms should be created in order to supply housing to this segment of the market, which represents more than 80% of the population. To attend the low-income and informal workers, this market should be provided of attractive characteristics to constructors.

The interest rates decrease observed during the last years has benefited the mortgage loan market.

Housing Demand Target Segment

Attended Segment

Pote

ntia

l Mar

ket (

Hous

es)

Familiar Income in Mimimum Wages

Housing Demand by Income Level2

In order to prevent the low-income population from living in irregularity or illegality and in stark conditions, it is necessary to provide it of housing. In order to prevent the low-income population from living in irregularity or illegality and in stark conditions, it is necessary to provide it of housing.

Historical Mortgage Loans1

36

In spite of the development of the mortgage market and of the diminish in the interest rates, the increase in the prices of houses has not allowed the low-income sector to be benefited. In spite of the development of the mortgage market and of the diminish in the interest rates, the increase in the prices of houses has not allowed the low-income sector to be benefited.

The government has established the need to generate 6 million mortgage loans during the period 2006-2012, which traduces in 339,762 acres of urban ground with the required infrastructure and equipment*.

In Mexico, many urban development programs have been carried out. However, the following is necessary to benefit the low-income population:

The State and Municipalities should influence the type of housing that the constructors build.

Alternative financing sources for the development of infrastructure should be explored.

The urbanization process – equipment of land, construction of housing, and individual sales - should be enhanced in order to reduce the cost of land and to give access to housing to the low-income population.

*Source: Softec, “Mexican Housing Overview 2006”

To give access to quality houses to the low-income population, the participation of the States and Municipalities is needed, as well as the creation of attractive conditions for the investment of constructors in social housing.

37

One of the problems regarding the lack of attention to the low-income market consists in the fact that the constructors found this segment less profitable and more risky. The typical cost structure for constructors according to the market segment is showed below. *

Participation of Constructors in the Housing MarketParticipation of Constructors in the Housing Market

*Source: Softec, “Mexican Housing Overview 2006”

The costs of investing in social and economical housing are duplicated with respect to the residential housing costs. The contrary happens with the profit margin. %

with

resp

ect t

o sa

les

Concept / Housing Type Social Economical Middle Residential PlusProfit Margin (before taxes) 10% 10% 15% 18% 20%

Unforeseen Expenses 5% 5% 5% 5% 5%

Financial Costs 8% 8% 6% 4% 4%

Sales and Merchandising 5% 5% 5% 5% 5%

Administrative Costs 4% 4% 4% 4% 4%

Project and Supervision 4% 4% 4% 4% 4%

Processes and Licenses 2% 2% 2% 2% 2%

Construction 40% 40% 39% 38% 33%

Infrastructure 14% 12% 8% 5% 3%

Ground 8% 10% 12% 15% 20%

38

SHF has, among its objectives, the promotion of accessibility to housing. As a result, it has taken an active role in the development of ground that can be used for the development of social housing.

SHF has, among its objectives, the promotion of accessibility to housing. As a result, it has taken an active role in the development of ground that can be used for the development of social housing.

SHF, in coordination with BANOBRAS and several Financial Institutions, has defined and implemented different projects known as “Macrodesarrollos”. These have the objective of creating management and financing methodologies for the States and Municipalities in order to generate low cost housing in a sustainable environment.

These “Macrodesarrollos” consider the creation of:

A self-sustainable city, adjacent and complementary to the already existent one, that offer jobs and services to the population –health, education, diversion, transport, etc.- (avoiding to create dorm cities or isolate urban developments).

Spaces that allow housing meant to all social classes (providing urbanized and well located grounds).

Public spaces that allow to develop a communitarian life – centers and sport areas, among others-.

Spaces for the environmental protection and enhancement. Open spaces for primary activities – agriculture and farming-. Legal and political certainty that will allow to offer housing at lower costs.

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Acquisition of ground

Primary Infrastructure

To improve the access to mortgage loans, all participants and markets developed for the Residential Mortgage Backed Securities should be directed to the steps currently unattended and to the low-income population.

To improve the access to mortgage loans, all participants and markets developed for the Residential Mortgage Backed Securities should be directed to the steps currently unattended and to the low-income population.

Mainte-

nance

Future Participation of SHF

Future Cover0 - 5 Mimimum Wages

Equipment

Ho

usi

ng

Dem

and

Construction of houses

Sale of Houses

Sale of Urban Ground

Current Participation of SHFCurrent Cover

6 a- 25 Mimimum WagesSecuritization

• Investors• Mortgage insurers• Financial guarantors• Structuring agent

All the advances achieved in the market and the products developed by SHF to promote the Residential Mortgage Backed Securities, should be used to attend the steps in the chain that are actually unattractive.

40

States and Municipalities Obtain a financing source to promote an ordered urban development. Line up the constructors’ interests with the urban development planning. Stimulate the development of social housing projects. Is an important instrument to confront the illegal development of cities. Besides, the States and Municipalities might attend the low-income population,

subsiding the land for social housing through the urbanization of ground.

Low-income population Urban developments with adequate equipment, services, employment sources, and

infrastructure linked to public spaces. Access to houses with infrastructure, at regular prices and with the possibility of

obtaining credits and subsidies.

Urban Developers The State or Municipality will guarantee the legal security of the project, as well as

its basic infrastructure and urbanization. Permissions and licenses are previously granted. Urban design and

individualization scheme with loan products of SHF, INFONAVIT, and other entities. Obtain financing for business lines that were previously unfeasible.

The advantages of this model can be observed in three different directions:The advantages of this model can be observed in three different directions:

41

I. Introduction








42

Challenges ahead in Housing FinanceChallenges ahead in Housing FinanceChallenges ahead in Housing FinanceChallenges ahead in Housing Finance

To attend the population that has not been attended, SHF has the following actions to achieve:

Strengthening and consolidating the Residential Mortgage Backed Securities Market.

Promoting the entrance of new specialized financial institutions in the unattended sectors: microfinance institutions, non-bank banks, and savings and credit institutions.

Developing of adequate products for these markets: savings and leasing.

In coordination with other housing institutions, adjust the Program of Subsidies to extend the access to mortgage loans.

Development of financial markets to attend the financing of infrastructure, equipment, and maintenance of the production of sustainable housing.

With respect to the previous point, SHF will take advantage of its experience in the development of securitization markets to securitize the franchises and flows of these Macrodesarollos.

19 de abr de 2023

Contacts:

Paloma Silva ‘[email protected] Castro ‘[email protected]

Contacts:

Paloma Silva ‘[email protected] Castro ‘[email protected]

agosto de 2015 mortgage market in mexico. 2 i.introduction ii.demographic dynamics, housing demand...

Documents

mexico slide

annual housing demand

social housing

mexican mortgage market

mortgage insurance

mortgage bank

mortgage loan

mission vision shf