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Housing Finance Market Overview
In Mexico, mortgage loans are available to homebuyers from banks, special non-depository financial institutions (SOFOLES) and the funds for housing for private sector and state workers (INFONAVIT and FOVISSSTE). Low-Income households can turn also microfinance institutions. The funds for housing provided more than 51 per cent of the total amount of residential mortgage loans in Mexico in 2007, but they lost in the last years a considerable share of the market to their competitors from the private sector. Yet, change has undergone also in the private sector: the banks which abandoned the mortgage market in 1995 (“Tequila Crisis”) entered back aggressively in 2004 by undercutting their private competitors, the SOFOLES, in price and by buying up the largest of them. Yet, the housing finance market has been growing only slowly. The ratio of mortgage debt to GDP increased from 8.2 per cent in 2000 to 9.3 per cent in 2007.
The Market from the Perspective of the Demand Side
In Mexico a loan-to-value (LTV) ratio of up to 95 per cent is regularly available. The actual size of the LTV ratio depends especially on the loan amount and the type of the loan provider. Fixed and variable rate loans are available on the market. IFONAVIT/FOVISSTE loans are indexed to the minimum wage and especially the SOFOLES offer loans denominated in foreign currencies and loans in “Unidad de Inversion” (UDI – inflation-indexed) with payments indexed to the minimum wage. The government supports the acquisition/construction of housing in several ways. The most important ways are, first, INFONAVIT/FOVISSSTE loans which carry an implicit subsidy; and second, the “Esta es tu casa” program which offers upfront subsidies for low-income households willing to buy property. The government offers indirect subsidies to the housing market by explicitly guaranteeing obligations of the Sociedad Hipotecaria Federal (SHF), a government housing finance agency.
House Price Development
The prices for newly constructed houses increased with a modest average annual growth rate of 5.5 per cent from 2000 to 2007. As this value is only slightly above the averaged inflation rate in this period, the real prices for houses remained almost constant.
Special Characteristics of the Market
Mexico established funds for housing in 1972. They receive on a monthly basis 5 per cent of the formal private sector workers and federal employees payroll (mandatory). The loans disbursed by INFONAVIT/FOVISSTE are indexed to the minimum wage and pay lower than market interest rates. The INFONAVIT/FOVISSTE savings can be leveraged to obtain market-based mortgage finance.
With the SHF Mexico has a secondary mortgage market facility. The SHF supports the market for residential mortgage-backed securities (RMBS) by offering mortgage insurance, financial guarantees and by assuring the liquidity of the market but it does not issue RMBS itself. Its role as second-tier bank for SOFOLES was determined to end in 2009. However, in anticipation of the continuous liquidity needs, the Mexican Congress lifted this time limitation.
While initially SHF was the only provider of mortgage insurance, private sector companies have meanwhile entered the market. The first RMBS was issued in 2003. Mexican RMBSs are denominated in peso or UDI.
The large deposit base of commercial banks has been so far sufficient to finance the bulk of the lending activities, so that banks accounted only for 5 per cent of the outstanding RMBS market. SOFOLES are funded by SHF funds (until 2009) and by the issuance of RMBS. Yet, they issue also debt obligations. In 2007, they accounted for 60 per cent of the total outstanding RMBS stock of issuances. INFONAVIT/FOVISSTE draw on member deposits to fund their mortgage market activities but they also issue RMBS. Around 10 per cent of all outstanding residential mortgage loans are RMBS (2009).