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IDB approves $2.8 billion to boost low-income housing market in Mexico

Mexico will receive three mortgage and housing-related financial packages for a total of over $2.8 billion from the Inter-American Development Bank to foster greater liquidity in a move to protect and build on recent gains in home ownership by the poor.


The IDB board on Tuesday afternoon approved a $2.5 billion conditional credit line available over a ten-year period and two non-sovereign guaranteed loans for $150 million and $185 million, respectively. The three operations make up the largest single financing package ever approved by the IDB board for Mexico. They come on top of $1.4 billion in loans approved in recent weeks for infrastructure and public services and climate change protection.


“Financing the housing sector in an economic downturn has a direct impact in employment growth because of the quick creation of new jobs, and in fighting poverty by providing better living solutions to mainly low-income families,” said Ellis Juan, the Bank’s representative in Mexico. “The market requires resources for both construction companies and mortgages for the beneficiaries.”


Mortgage Market $2.5 billion CCLIP


Mexico will promote efficient and inclusive mortgage markets with a $2.5 billion IDB ten-year conditional credit line for investment projects, known as a CCLIP. Mexico will receive an initial $500 million loan under this facility. 


The line of credit will help Sociedad Hipotecaria Federal, SNC (SHF), a public entity that promotes home ownership, provide liquidity and stability to the Mexican primary and secondary mortgage markets. The program is guaranteed by the Mexican State.



“The housing sector in Mexico currently faces significant challenges from the financial market downturn and rapidly increasing housing demand for mortgages, estimated by SHF at more than seven million households in the period 2007-2012,” said Juan. “Despite the international conditions, the Mexican economy is in a good position to weather the situation thanks to a prudent economic policy, sound fiscal management, reserves and a well-regulated and well-capitalized financial sector.”


The first $500 million loan will strengthen the structure of SHF, which will be able to offer lines of credit to authorized intermediaries and maintain liquidity in secondary markets through the acquisition of bonds backed by mortgages. It will also respond to low-income families housing needs with innovative products offered, such as savings accounts. The loan is for a 25-year term, with a five-year grace period, at an adjustable interest rate based on Libor.



There is also a backlog of 9.5 million homes, many of which are households in the informal sector with incomes of less than three times the minimum wage. Only 650,000 homes are added to the housing market each year. “Given the underlying demographic trends, and the challenging international environment, it is critical to support SHF’s efforts to maintain the flow of funding to Mexico’s housing markets,” said IDB project team leader Morgan Doyle


Innovative Facility to Support Mexico’s Housing Finance Market Participants


As part of the IDB’s programmatic strategy to support the Mexican housing finance sector, the IDB approved today the creation of a Mexican Housing Finance Support Facility that will make available up to the equivalent of US$150 million Dollars in Mexican Pesos for up to three years to eligible banks and other mortgage finance providers.


“This private sector facility is meant to address temporary shortfalls in the market’s ability to enhance or place residential mortgage backed securities with high quality investors, as well as provide equity support to qualified entities,” said IDB team leader Kelle Bevine. “The IDB can have an important catalytic effect through this facility by making its products open to all market participants, giving all Mexican housing finance players the chance to request credit enhancement support on a level playing field.”


“This transaction is a joint effort between the sovereign and non-sovereign guaranteed windows of the IDB to provide a coordinated response to the challenging environment for the capital markets in Mexico” added Hans Schulz, General Manager of the Structured and Corporate Finance department of the IDB.


The IDB will provide mezzanine credit support via partial credit guarantees or purchases of mezzanine notes by way of a loan to a trust. The Bank will also finance the purchase of up to 15% of senior residential mortgage-backed securities by way of a loan to a trust, and provide an unsecured loan to a fund envisioned to provide capitalization support to eligible mortgage entities.


IDB has collaborated on this effort to limit mortgage market disruption with the International Finance Corporation (IFC) of the World Bank Group.  The IFC obtained approval for a similar US$150 million Facility last month.  Together, IFC and IDB will make available $300 million with an aim to address capital market liquidity pressures and catalyze private investors.


“The Sociedad Hipotecaria Federal (SHF) has encouraged multilateral organizations to support the sector to prevent a reversal in the recent progress on narrowing the housing gap in Mexico,” said Daniela Carrera Marquis, IDB's financial markets division chief. “Residential mortgage-backed securities are at the end of the housing finance value chain and the lack of liquidity in this market would significantly slowdown the access to finance to families.” 

Infonavit Mezzanine Finance Facility

An IDB facility will support Infonavit’s lower income residential origination efforts by providing credit-enhancements to its mortgage-backed security program. The IDB facility will support Infonavit’s issuances for an amount of up to the equivalent of $185 million dollars in Mexican Pesos for a three-year period and is expected to play a catalytical role in attracting investors to Infonavit's mortgage-backed security program. 

Infonavit is Mexico’s largest provider of mortgage financing, and it specializes mainly in lending to the lower-income segments of the population employed in the formal sector of the economy.  In 2008, Infonavit lent more than 60% of total mortgages to individuals earning less than four minimum wages in Mexico and will continue to aim to do so in 2009. 

“We look forward to a fruitful partnership with IDB to pursue our funding efforts and continue meeting the housing finance needs of Mexican workers”, said Jose de Jesus Gomez Dorantes, Infonavit’s head of securitized products.  “This facility will allow Infonavit to continue expanding its provision of mortgage finance to low-income households by attracting Mexican investors who are constrained to buying very high quality assets,” said Daniela Carrera Marquis, IDB's financial markets division chief. 

“Infonavit has gone through a cutting-edge modernization process of its origination and servicing standards while boosting access to housing finance to low-income individuals in Mexico,” said Olivier Delille, project team leader.


“The three operations approved reflect the IDB commitment to support Mexico’s Federal Government efforts to maintain liquidity in the mortgage sector markets and to expand access to housing solutions for low-income households,” concluded Ellis Juan, IDB country representative for Mexico.

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