Mexico looks to fill funding gap with covered bonds

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Mexico looks to fill funding gap with covered bonds

Mexico’s housing construction boom has been good news for emerging market investors, as the country’s mortgage-backed securities scene has developed from an unknown asset class to a $3 billion market that makes up more than 40% of Mexico’s capital market annual turnover.

Rocked to its core?


Mexico’s largest mortgage lender, government-run housing fund Infonavit, completed its first cross-border MBS placement this year, which bodes well for funding. But Mexico’s mortgage lenders are realizing that they must do more to attract institutional investors, especially mutual funds that are still wary of Mexican securitizations, as demand for mortgages in Mexico’s low- to mid-income segments is growing quickly. With $11 billion in assets, Mexican special purpose mortgage lenders, sofoles, are still a long way from reaching the $180 billion in funding that the state-run mortgage bank predicts Mexico needs to generate by 2020 to meet housing demand. Mexico’s mortgage-backed securities market makes up less than 1% of the country’s GDP, compared with almost 10% in the US.

Originators are looking to covered bonds to develop a new instrument to complement the fast growth of securitizations. Mexico’s second-largest mortgage lender, Su Casita, is considering moving into covered bonds this year or early next year to help raise its growing funding needs. "We are seriously considering using covered bonds," says Mark Zaltzman, Su Casita’s chief financial officer. Su Casita, the pioneer of mortgage-backed securities in Mexico with the country’s first $54 million issuance in 2003, says it aims to raise $1 billion from capital markets securitizations this year.


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