GMAC Financiera
The centrepiece of the Mexican government’s social programme is its homebuilding scheme. For the first time, working-class Mexicans can afford to buy their own homes, taking out government-supported mortgages from Mexican mortgage lenders, or sofoles.
A lot of the sofoles are small, however, and in need of liquidity. They’re good at originating loans, but they are far from the obvious place to warehouse them.
Enter GMAC Financiera, a subsidiary of GMAC RFC – the residential funding arm of the financing arm of General Motors. GMAC felt it was time to move into the Mexican market in late 2001, but spent the first two years in the country putting together a loan portfolio and getting its paperwork in order. Even after mandating CSFB as lead manager, it took eight months to get the first deal to market: a $53 million bond with an expected average life of five years, denominated in UDIs, or inflation-linked Mexican pesos.
The bond, which finally came in December 2003, was the first ever traditional mortgage-backed security in Mexico, and was sold mainly to local pension funds. It came with a partial guarantee from Dutch development bank FMO, which helped get it a triple-A national-scale rating from both Moody’s and S&P. Most (71%) of the underlying mortgages came from a lender called Su Casita, but GMAC had managed to originate 29% of them itself.
The second Su Casita deal came in August 2004, and built impressively on the first. This one was $100 million, again in UDIs, plus a $12 million mezzanine tranche that was largely sold abroad to hedge funds. “There’s not a lot of risk-based pricing in Mexico,” says Mauricio Jannet, managing director of GMAC in Mexico: the pension funds and insurance companies generally like only the very highest rated debt.
The best of the GMAC deals, however, came in November, and was unrelated to Su Casita. Rather than lending Su Casita money to lend on to homeowners, GMAC simply bought a $100 million portfolio of mortgages from one of Mexico’s biggest mortgage lenders, Hipotecaria Nacional. It then packaged that portfolio into a $95 million UDI-denominated bond with an average life of 8.5 years – easily a record for Mexico. GMAC also did the whole thing without the partial guarantee from FMO.
In this deal, the pension funds were largely absent, their place taken by a wide range of other investors, including domestic banks and foreign hedge funds.
Foreign investors are crucial for the future development of the Mexican MBS market. “Our expertise is being able to price the risk that is in the mortgages,” says Jannet, who notes that GMAC itself generally takes a large chunk of the residual bonds in its deals.
“Once we securitize, we normally keep some of the first loss,” adds Jannet. “It helps the credit rating, and it provides investors with a sense that we believe in the product so much that we’re going to buy the residual bonds.”
Jannet is committed to coming with ever-longer deals for the Mexican market. “The more we can entice institutional investors to go out to the term of the mortgages,” he says, “the better pricing we can get.”
He’s also committed to building much better data on the Mexican mortgage market, which is currently quite opaque when it comes to prepayment rates and the like.
