MEXICO CITY, MEXICO, February 17—The International Finance Corporation today completed an investment of up to US$3.7 million in General Hipotecaria, S.A. de C. V. (GH), a private home mortgage bank in Mexico. The financing will support greater home ownership by lower-income groups by increasing the supply of affordable local currency housing finance, which has been in short supply since the 1994 peso devaluation.
Mexico's thinly developed financial sector can currently meet only about half of the country's demand for home mortgages. The backlog of housing demand is estimated at about 6 million units, and growing at up to 300,000 units a year. GH represents the local private sector's innovative way of addressing this problem by strengthening the quality of primary mortgage origination in Mexico, thus laying a basis for future local-currency mortgage securitization that can lead to far greater expansion in the supply of housing finance.
Since its founding in 1994, GH has built a portfolio of close to US$60 million in original mortgages, primarily by working with the Mexican government's low-cost housing agency, Fondo de Operaci¢n y Financiamiento Bancario a la Vivienda (FOVI). IFC will take a 25% equity stake in GH as part of a capital increase enabling the company to increase the number of mortgages it offers lower-income groups and to reduce its reliance on FOVI resources, in part by issuing mortgage-backed securities to Mexico's new private pension funds (AFOREs) and other local financial institutions. IFC also arranged for the largest source of home mortgage funds in the United States, the Federal National Mortgage Association (Fannie Mae), to advise GH management on mortgage origination, servicing, and securitization.
"We are pleased to work with GH to help revitalize Mexico's primary mortgage market and create a secondary market, both of which support the government's objective of widening the scope of local capital markets," said Karl Voltaire, Director of IFC's Latin America and the Caribbean Department. "We are glad to play an institution-building role in such an important part of the local financial sector. In this context, IFC is also cooperating with the World Bank in helping the Mexican authorities develop a regulatory framework conducive to efficient asset securitization with an initial focus on home mortgages."
Mr. Voltaire and GH Chief Executive Officer Jose Manuel Rivero signed investment agreements today at GH's headquarters in the Mexico City suburb of Santa Fe. The investment will support the housing industry and provide essential long-term instruments to the capital markets by helping to:
diversify home mortgage lending institutions' sources of funding
provide a new and important product for local long-term investors and savings institutions, particularly at a time when the pension system is being privatized
enable mortgage banking institutions to increase fee income through mortgage servicing;
improve liquidity in the financial sector through non-recourse asset securitization of home mortgage portfolios; and
promote social stability by making housing more affordable.
IFC, a member of the World Bank Group, is the world's largest multilateral source of equity and loan financing for private sector projects in developing countries.
