The history and evolution of the residential mortgage market in Mexico : a look at its future

Abstract

Research was conducted in Mexico in order to determine the size, future growth and current status of the Mexican residential mortgage market, and to assess the potential for securitization. Securitization offers good prospects of liquifying the mortgage loans enabling these funds to be reinvested into the housing market. In the long run, securitization can also attract other sources of capital, both foreign and domestic, to the housing market. The key elements of structuring these securities lie in the underwriting standards and loan origination systems that are effectuated. Poor origination and collecting practices will hinder the success of securitization. The development of an efficient primary market would facilitate the sale of loans in the secondary market, increasing capital flow efficiencies. Interviews with private and Federal authorities confirmed that securitization is being actively pursued and encouraged by the Mexican government. Some of the important questions to be answered are; how quickly can the primary market be developed, what impact will the new foreclosure laws have on recovery rates, what demand will the domestic markets have for these securities, and how quickly can foreign investment be attracted. But at this moment, the most important question to be answered is to what degree the government should be involved in developing the secondary market. It was found that FOVI will be further developed to act as an originating agency since it is currently one of the only sources of funding for residential mortgages in Mexico. The immediate future for securitizing mortgages rests on the precedent set by these new FOVI loans.