BBVA Mexico announced this week that it is placing $250 million USD in mortgage-backed debt into the secondary market - its first offering of Mexican mortgage-backed debt.
While this amount may not seem significant to those who follow the mortgage markets in the U.S., this news is significant to the expanding Mexican home loan market. BBVA Mexico (operating under the Bancomer name in Mexico and using the name Hipotecaria Nacional for its Mexican mortgage lending division) has been offering mortgages to Mexicans only for the last two or three years and has been working on putting together a portfolio of mortgages attractive enough to offer into the secondary market. They have been able to accumulate enough good mortgages to attract a AAA rating for this $250 million USD mortgage-backed debt offering.
This debt placement comes at a time when the U.S. secondary mortgage market is struggling under the weigh of so many failing subprime loans. One of the key differences in Mexico is that lending standards are much tighter so subprime loans do not exist in Mexico. Because a consumer credit ratings system for Mexicans is still in its infancy, Mexican banks are forced to do additional due diligence to check on the creditworthiness of borrowers. This process harkens back to the day of the community banker in small U.S. towns who would call employers, neighbors and other references to assess the creditworthiness of a potential borrower. This hands-on approach allows Mexican banks to keep their default rates very low and earn good ratings when offering these mortgages into the secondary market.
For the mortgage novice (including myself), an offering into the secondary market of mortgage-backed debt allows the issuer (in this case BBVA) to free up cash to issue additional mortgages to consumers. As BBVA is able to issue more mortgage-backed debt into the secondary market, they are able to issue more and more loans to Mexican citizens with better rates and terms.
This news is significant to Puerto Peñasco (Rocky Point) because a strengthening secondary mortgage market will further allow the growing Mexican middle class to be able to obtain mortgages on favorable terms and to purchase better homes - increasing their standards of living. More of the housing being built in Puerto Peñasco will therefore be in a range that is affordable to these families.