In the US, mortgage-backed bonds are imploding, causing losses estimated at well over $100 billion, and raising worries about the viability of the US economy as a whole. That’s much more than a sneeze. But in Latin America, the market in mortgage-backed bonds continues to go from strength to strength.
In July, for instance, Colombia’s Titularizadora priced $192 million-worth of mortgage-backed bonds, denominated in Colombian pesos, at a yield of 10.14%, and with a final maturity of as long as 15 years.
In Mexico, the news was even more impressive: state-owned mortgage lender Infonavit placed $250 million of mortgage-backed bonds denominated in UDIs, or inflation-indexed Mexican pesos, at a real yield of just 4.28% and with a maximum term of 22 years. The issue is the biggest Latin American mortgage-backed bond yet.
In both cases, the investors were entirely local, with domestic pension funds taking a large chunk of the deals. Foreign investors weren’t even courted, despite their historical propensity to buy local paper at lower yields than domestic institutions are sometimes willing to accept.
The fact is that local debt markets in Colombia and Mexico have already matured to the point at which foreign investors are no longer necessary. Foreigners certainly helped the markets to mature more quickly than they otherwise would have, but the locals can take it from here, thank you very much, if US investors suddenly get a nasty case of risk aversion. Infonavit has now issued a total of Ps16.4 billion ($1.5 billion) in mortgage-backed bonds, helping to create a whole new asset class for the Mexican debt capital markets.
And given that Infonavit is state-owned, the credit worries that are presently upsetting the US markets are happily absent from the market in Cedevis, as the Infonavit bonds are known.
That said, Infonavit is far from the only issuer in the Mexican mortgage-backed market, and no one really knows how these bonds are going to behave. The good news is that a lot of the problems in the US simply don’t apply in Mexico and Colombia, where there hasn’t been much if any of a housing bubble, let alone a popping thereof. What’s more, mortgages are very much still financing instruments for buying a new home, as opposed to instruments used to withdraw home equity. And a lot of the mortgage-backed issuance is securitizations of mortgages for low-income Mexicans, which carry explicit government guarantees even when the lenders aren’t state-owned.
But in such a young market, problems can and will arise. "Much of the concern on the US sub-prime MBS market right now stems from doubts about the accuracy of the ratings of the MBS paper," says Christian Stracke of CreditSights in New York. "Given that the agencies had even less historical information about mortgage performance in places like Mexico than they had for their US sub-prime ratings, one has to assume that the ratings of emerging markets MBS are just as problematic as those for US sub-prime."