This page updated regularly deals with securitization developments in Mexico. If you have any news or development to contribute to this, please write to me.
More on this site and elsewhere:
Mortgage securitization in Mexico – a report from Fitch IBCA in PDF format:
Full book on Mexico housing including write up on financing:
Section of the above book dealing with financing of Mexico's housing:
Last Updated 4 August, 2009: by Nidhi Bothra
In Mexico for a long time the securitization markets remained inactive because of the ban on trusts (“fideicomisos”) from issuing debt securities and that there was a long drawn foreclosure procedure. It was only in 1996 that laws were amended and securitization became possible. Today, the trust structure for SPVs is the most common structure used in Mexico because of the legal, accounting and taxation benefit available. There can be two or more trusts or there can be a master trust as a servicer with a sub-servicer.
The securitization transactions in Mexico faced a lot of hurdles, with the past laws in force – the bankruptcy laws were not designed to deal with structured finance transactions, the foreclosure procedures were long drawn and the Mexican trusts were not able to issue debt instruments. So for these reasons, the Mexican securitization transactions were based in USA. The SPV was offshore and the issues were dollar denominated. Since 2001 there have been significant developments in the legal scenario – the Mexican Insolvency laws, securities laws have been changed since then.
Around 2006 the Securities Market Law, (Ley del Mercado de Valores) was enacted. The problems were addressed with new bankruptcy laws and new legal structure was introduced for securing finances in Mexico. Traditionally in Mexico the housing finance needs of the lower income market was catered by the Government. With the growing demand of housing in this segment of the society the need for securitization was more felt to find finances, also helps in the diversification of the credit risks in the market.
The most common structured finance transactions in Mexico are Mortgage Backed Securitization, leveraged leasing deals involving real estate and infrastructure trusts. The first MBS issuance in Mexico took place in 2003. The first cross border construction loan transaction took place in 2005. It was during 2006, largely after the enactment of new laws, that the domestic market reached a new high. In 2006 the volumes of the domestic issuances comprised of 89% of the total volumes which was less than 20%, five years ago. Around 1996 – 2000 cross-border securitization transactions were more than domestic securitization transactions as the legal framework was not developed and there was lack of local investors. During 2001 – 2004 the domestic market developed and several transactions picked up. There have been several future flow transactions in Mexico in the past. After the Mexican Peso devaluation, the future flow transactions were the cost effective deals for banks and corporations
By 2007, Latin America’s securitization market has expanded rapidly. Brazil and Mexico accounted for three quarters of the domestic securitized issues in 2006 (according to BIS 2007 report). Mexico has dominant mortgage backed securities, from the 8 residential mortgage backed securities that were issued in 2005 the numbers rose to 18 in 2006, primarily coming from the government mortgage lender ‘Infonavit’ and also from Sofoles – the specialized non banking financial institutions granting mortgage loans. Earlier the issuances had third party guarantee, credit enhancement at the mezzanine risk levels, but around 2006 issues were made without this credit enhancement, indicated that the risk taking appetite of the investors has increased; this was largely due to the success of sofoles securitization deals in the past.
In Mexico, in the year 2007 there was a huge deficit in the housing supply because of which the federal government established federal mortgage institutions to facilitate loans, grants, guarantees and facilities to cater to the needs of the housing industry. The demand for the RMBS transactions should have grown with the growing demand for housing finances As per the Fitch report on Mexican RMBS performance, 2009 – the global economic slowdown, drying of the liquidity, contraction in the credit markets and rising unemployment showed on the securitization transactions as well as the delinquencies were on the rise as well. Though mortgage origination figures show a rise in the loans granted in 2008 as compared to 2007, it is only for after the global recession subsides that a true picture of the markets can be ascertained.
10th Jan 2002: Latest market report
Please see a news report on our site giving market data for 2001 and expected activity for 2002. Notably, in 2001, Mexican securitization volume grew 290%
19th July, 2000:
This page was comprehensively revised.
Late breaking additions: 3rd April, 2000:
Consumer finance giant Grupo Elektra has announced securitization of accounts receivables – click here for the news item.
State of the Market:
Securitisation transactions are being talked about in Mexico: some deals have been concluded in the past couple of years or so.
Most of the securitisations in Mexico have been future flows or export receivables securitisation. In 1997, there was an offer of $1.2 billion in future flow structured transactions. There was also a credit cards receivables deal by Banco Nacional de Mexico S.A. worth $215 million. Grupo Minero Mexico S.A. de C.V. came to market with $420 million secured export notes. Industrias Peñoles S.A. de C.V. , the Mexican silver mining company, issued a unique note where the payments to the note holders were to be made in kind, that is, in form of silver.
During 1994, Aeromexico, an airlines company, had also securitised its airlines ticket receivables.
In March 1998, a securitization was completed by Grupo Minero Mexico, the mining subsidiary of the Grupo Mexico conglomerate. The US$500 million guaranteed senior note issue was supported by warranties on the company's export receivables, principally copper, zinc, and silver.
Like in other emerging markets (e.g., Turkey and Pakistan – see in our country pages devoted to these countries) there have also been securitisations of foreign inward remittances – in October 1998, Banamex, a bank issued US$300 million remittance-backed securities.
The first publicly offered transaction in Mexico was towards end-1998 by a consumer goods retailer Grupo Elektra S.A. de C.V., which issued securities backed by trade receivables.
Mortgage backed securitization in Mexico:
Rating agency Standard and Poor's in a report in Structured Finance July 2000 has pointed to the following structural problems in securitisation of mortgage receivables in Mexico:
- Difficulties in the securitization of standard mortgages that are adjusted according to two indices;
- Insufficient volume of mortgages originated through the government’s new low-income housing program, due mainly to its recent creation;
- Need for increased liquidity in the banking system to allow for lending to resume;
- Present state of legal reforms, including frameworks for insolvency and foreclosures; and
- Further development of capital markets for long-term investments.
Future flows securitisation in Mexico:
Mexico has the distinction of being the first country in the world to introduce future flows securitisation: see for details our page on securitization of future flows. Since then, Mexico has always been an important centre for securitization of future flows.
The Mexican government also has made a number of reforms aimed at creating a more efficient housing finance system. In the early 1990s, it authorized the creation of finance companies (SOFOLs) to encourage competition in the industry, and it is currently looking to reduce the cost and timing of foreclosure.
FOVI, the Mexican housing trust, has been trying to work out an MBS mechanism for financings of SOFOLs.
The legal requirements for assignment of mortgages entailed notification to the obligor as also a compulsory registration, implying costs as well as inconvenience. Towards this, several of the States have begun modifying their civil codes to allow for the assignment of mortgages without the need for obligor notification and registration. Besides, mortgage foreclosure laws have also been amended by most of the States.
One of the significant issues in Mexican securitisation will be the issue of withholding tax. The Income Tax Law provides that income in credit, obtained by a non-resident through the acquisition of a credit right of any kind, whether present, future or contingent, that is sold by a resident in Mexico, will be subject to a withholding tax rate of 10%. The income will be determined, generally, by subtracting the contractual price from the face value of the credit right. The law mentions that the withholding takes place when the accounts are considered sold. This issue is important in the case of selling future receivables.