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Tract Homes in TijuanaObscure Economic Indicators, Part 5: Mexican Mortgages

By Daniel Gross
Posted Friday, Oct. 8, 2004, at 4:08 PM ET

Ordinarily, a $100 million offering of mortgage-backed securities—bundles of home loans packaged into bonds—wouldn't be noteworthy. After all, billions worth of MBS are sold to investors around the globe every day.

But one small offering in late August should have been cause for celebration. In August, Mexican mortgage lender Hipotecaria Su Casita and GMAC Hipotecaria, a unit of General Motors Corp.'s financing arm, sold about $100 million in mortgage-backed securities, bearing an interest rate of 6.35 percent for 12 years. The offering of 4,000 mortgages—on houses whose values ranged between $10,000 and $350,000—was just the third (and largest) offering by a private lender in Mexico.

In the decade since NAFTA came into effect, Mexico's consumers have increasingly been able to gain access to the kinds of services that Americans to the north take for granted: Wal-Marts, Home Depots, and Domino's Pizza. But American-style financial services have been much slower in coming—especially in the realm of housing finance.

Mexico has long suffered from a chronic housing shortage and a chronic shortage of private capital to finance home purchases. The International Finance Corp., an arm of the World Bank, says Mexico has "an estimated deficit of some 4 million units, reflecting the difficult access to housing finance for most individuals—and especially the poor." The country's banking system, which was nationalized in 1982 and has only slowly privatized since, simply isn't set up to make loans to small borrowers. Most home lending is conducted by SOFOLES, financial institutions that don't take deposits and are generally financed by a government lender, Sociedad Hipotecaria Federal. (See this Standard & Poor's report for a brief primer on Mexico's mortgage industry.)

One of America's great financial innovations has been the securitization of loans and credit. By packaging car loans, credit card receivables, student loans, and mortgages and then selling them as tradable bonds, Wall Street has devised a remarkably effective means of spreading the risk of lending broadly while fueling credit growth.

But it wasn't until last year that the first Mexican mortgages were securitized. Last December, Su Casita and GMAC sold a $53 million offering. This summer, Hipotecaria Nacional, a SOFOLE founded in 1994 that has quickly grown into the nation's largest private mortgage lender, sold Mexico's second offering. Foreign capital is continuing to flow into Mexico's housing market. In September, Spanish banking giant Banco Bilbao Vizcaya Argentaria agreed to buy Hipotecaria Nacional for $375 million.

These Mexican mortgage-backed securities aren't exactly the same as American MBS. They're denominated not in pesos or dollars but in an inflation-indexed currency unit called a UDI, to protect investors from the prospect of currency gyrations. And there's no secondary market in the Mexican offerings—yet. Given the small size of the offerings, people who buy them will pretty much have to be content with taking the interest payments. As the offerings become larger and more frequent, investors will be able to trade them.

In effect, MBS are the vehicles through which one of the promises of NAFTA—the integration not just of consumer and business-to-business markets, but of capital markets—can be realized. Through these offerings, mutual-fund managers in Boston can essentially lend money to an accountant in Oaxaca or a maquiladora worker in Guaymas.

The knock on NAFTA has been that we're importing far more goods from Mexico than we're exporting there. That may be true. But the birth of Mexican mortgage-backed securities shows that we're exporting something pretty valuable—capital, plus the American dream of home ownership.

Got an Obscure Economic Indicator? Send the idea to moneybox@slate.com. Gratitude, recognition, and a piece of Slate swag will be yours.

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Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at . He is the author of Pop! Why Bubbles Are Great for the Economy.
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