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International Mortgage Market Opportunities in Mexico Sofoles a successful model that is changing MBA’s 90th Annual Convention October 21th, 2003 Manuel Campos Spoor Asociación Mexicana de Sociedades Financieras de Objeto Limitado What are the Sofoles?

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International mortgage market opportunities in mexico sofoles a successful model that is changing l.jpg

International Mortgage MarketOpportunities in Mexico Sofoles a successful model that is changing

MBA’s 90th Annual Convention

October 21th, 2003

Manuel Campos Spoor

Asociación Mexicana de Sociedades Financieras de Objeto Limitado


What are the sofoles l.jpg
What are the Sofoles?

  • The “ Sociedades Financieras de Objeto Limitado” are Mexican Non-bank banks formed in 1994. They are the Mexican Mortgage Banks

  • They have originated over 300,000 and have a mortgage portfolio of over US$7.5 billion (Six fold increase in 5 years).

  • Sofoles finance the home buyers (Mortgages) and the home builder (Bridge loans).

  • There are 17

    Sofoles that

    operate in

    over 100

    cities.

Opportunities in Mexican Mortgage Market


Original business model l.jpg

Developer

(Construction)

SHF

(FOVI

Home

Buyer

Original Business Model

  • The Sofoles only financed the construction and the purchase of new homes.

  • Their only source of funds was the Sociedad Hipotecaria Federal (SHF) then known as FOVI.

  • Only adjustable rate mortgages (UDI based) with a payment obligation in minimum wages.

Sofol

Opportunities in Mexican Mortgage Market


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Debt market funding

Where do they get their funds?

  • Until 2000 all funds came from SHF (Known as FOVI).

  • Sofoles have developed market funding (Banks, Intl. Sources and debt market).

  • SHF has as started its migration to become a guarantor. In 2003, the stopped funding new construction.

Opportunities in Mexican Mortgage Market


Housing demand l.jpg

HOME PRICES USD

RP >$220,,000

R $100-$220,000

M $38-$100,000

E $21-$38,000

S $8-$21,000

MIN <$8,000

INCOMES USD

A/B >$100,000

C+ $40-$100,000

C $12-$40,000

D+ $8-$12,000

D $3-$8,000

E <$3,000

Housing Demand

  • 750,000 new homes are needed in Mexico just because of household formation.

  • Most of the demand is from households that earn less than $10,000.

  • The Housing finance system generates over 400,000 loans.

Opportunities in Mexican Mortgage Market


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Mortgage Usage

  • Almost 100% of loans were for new homes up to 1996.

  • In 2003 almost 20% of the total loans are for other uses as:

    • Existing homes

    • Rental Units

    • Home

      improvement

    • Home equity

Opportunities in Mexican Mortgage Market


Mortgage market participation l.jpg

Mortgage market participation

Mexico is clearly under penetrated in mortgages as compared to other economies.

Accordingly, the growth potential is substantial.

Opportunities in Mexican Mortgage Market


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Challenge Satisfying demand

  • In order to satisfy the demand over 300,000 additional affordable mortgages have to be provided.

  • The funds for the mortgage market have to double and exceed US$20 billion per year.

Opportunities in Mexican Mortgage Market


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Products and market coverage

  • Sofoles now finance new and existing homes.

  • Also offer home improvement and individual construction.

  • Have started exploring US market, Mexicans in the US buying a house in Mexico.

  • Since this month the offer fix rate mortgages (Up to 25 years).

Sofoles offer loans for all the market range and for new and existing homes. Funding from SHF and other sources.

Opportunities in Mexican Mortgage Market


Participation in the debt market l.jpg

$10,000

Off balance sheet

$9,000

$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$-

1999

2000

2001

2002

2003

Commercial Paper

Bonds (PMP)

Certificados Bursátiles

Participation in the Debt Market

  • Have issued debt instruments. Commercial paper, Midterm notes, 7 year structured “Certificados” and 10 year MBB for individual mortgages

  • The outstanding debt should increase 60% during 2003.

  • First MBS for individual mortgages will be issued soon.

Opportunities in Mexican Mortgage Market


Conclusions l.jpg

Competition

  • Less government participation (Co financing, guarantees, etc.).

  • Development of MBS market.

  • Access to international investors.

Funding

Conclusions

  • Strong demand will continue, although some markets will saturate.

  • New products and channels (ie. Used housing and Mexicans in US).

Demand

Opportunities in Mexican Mortgage Market


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Final Thoughts

The business environment of the Sofoles will change in the next years. To be successful Sofoles will have to promote affordability, develop new products and leverage in the securitization funding model.

Opportunities in Mexican Mortgage Market


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Additional information

  • Contact

    Asociación Mexicana de Sociedades Financieras de Objeto Limitado

    Homero 1804-803

    11570 México, DF

    Tel (052) 55 5395-3352

    [email protected]

    www.amsfol.com.mx

    Or

    Manuel Campos Spoor

    Hipotecaria Su Casita

    Tel (052) 55 5481-8306

    [email protected]

    www.sucasita.com.mx

Opportunities in Mexican Mortgage Market


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