Mortgage-Backed
Securitization:
New legal development in
Mexico
By Manuel Caloca González
INTRODUCTION.
The aim of the present paper is to
present and analyze the changes that since mid-90’s have been occurred in Mexico
in order to adequate the Mexican legal system to the financial technique known
internationally as securitization. The
first chapter is dedicated to present background information and principal
characteristics of this figure. The
second chapter is dedicated to study the process of securitization in The
United States of America, because this is the place were this figure came up
and has have an outstanding success.
The third chapter is focused in the Mexican Legal System in a successive
order, beginning from the mortgage credit origination to the issuance and
investors for Mortgage backed securities as well as giving a description of how
the structure of mortgage securitization takes part after the recently changes
to the respective laws.
This Paper is not intended to be an
exhaustive investigation of all issues relating to securitization in Mexico,
instead we treated only issues where a change in the laws is involved. The structure of our work is the following:
I. Mortgage Securitization.
a) Concept of securitization and
mortgage securitization.
b). Purpose of Securitization.
c). Advantages of securitization to
originators.
d). Advantages of securitization to
investors.
e). Disadvantages of securitization.
II. Mortgage Securitization
in the United States of America.
a). Players of securitization.
b). Structure of the process of
securitization.
c). Legal isolation against
originator bankruptcy risk.
III. Mortgage Backed
Securitization in Mexico.
1.
Introduction.
2. Mortgage
Originators.
a) Public Originators.
b) Private Originators.
c) Standardization of mortgage
credit origination.
3.
Security interests “in rem” provided
to back mortgage credits.
a). Mortgage (“Hipoteca”).
b). Guaranty trust Agreement. (“Fideicomiso
de Garantía”).
c). Enforcement of mortgage.
d). Enforcement of guaranty trust.
4
Transfer of the secured Credits from originator risks (Isolation process).
Assignment of rights.
5
Special Purpose Entity.
a). Trusts as special purpose entities
b). Corporations as special purpose
entities.
6.
Banking secrecy reform.
7.
Issuance of MBSs and their Investors.
a). Issuance of securities.
b). Investors.
8.
Actual process of Securitization in Mexico.
IV. Conclusions.
I. Mortgage Securitization.
a) Concept of Securitization and mortgage securitization.
Securitization, also known as Asset-backed securitization
and structured financing has been defined as:
“ a financing technique whereby a company transfers rights in receivables or other financial assets to an entity that serves as a “special purpose vehicle” (SPV) ( or as Special Purpose Entity (SPE), which in turn issues securities to capital market investors and uses the proceeds from the issue to pay for the financial assets”[1]
The source of the receivables could be any right of
payment or asset that generates an income[2]
with a stable cash flow.[3] The existing or future receivables could be
the income generated, among others, by residential or commercial mortgages,
credit card receivables, automobile loans, student loans, airline ticket
payments, health care receivables, insurance fees receivables, royalties on
intellectual property, sales of oil, taxes receivables or any other income
source that is regular and predictable.[4]
[5] All of them are attractive mid and long term
investment portfolios to institutional investors.
As related to mortgages, Securitization is defined as
“the financing of real estate through the nontraditional methods of stocks and
bonds, known collectively as “mortgage-backed securities” (thereafter “MBS’s”)
in order to expand the available lending community and to use more efficient
(cheaper) primary and secondary capital sources.[6] Those MBS’s are instruments collaterized by
Mortgage loans that are secured by real state.[7]
MBS’s are “securities” within the meaning of federal
securities law.[8] In January 1958 the Securities and Exchange
Commission stated that an offering for investment of whole or fractional
interests in mortgages or deeds of trusts frequently constitutes an investment
contract which is a security within the meaning of federal laws.[9] The Commission’s definition of “investment
contract” was based on the Supreme Court’s decision in SEC v W.J. Howey Co.[10]
[11] The Court stated that “an investment
contract for purposes of the Securities Act is a contract, transaction or
scheme whereby a person invests his money in a common enterprise and is led to
expect profits solely from the efforts of the promoter or a third party”[12]
By difference to “Factoring of account receivables”, in
Securitization “a company securitizes their future flows, as opposed to past
flows, or money already due”[13]
b) Purpose of Securitization.
The goal of the Asset Securitization is to get low cost
funding from the capital markets, such as Wall Street, by separating all or a
portion of the originator (also known as transferor) receivables from the risks
associated with him[14],
i.e. Bankruptcy, in order to “generate an income stream that is more certain as
to credit risk and more predictable as to timing of receipt than the company’s
overall operations”[15] The originator sells the right for the
receivables instead of borrowing at high interest rates, because of his credit
risk.
c) Advantages of Securitization to originators.
1. “The Transferor (originator) can obtain liquidity of
the assets by transferring future payments into instant cash and can diversify
funding sources”.[16]
2. Securitization represents an additional source of
financing for an originator, because it gives him access to lenders that
otherwise would not be available to him,[17]
i.e., Institutional investors in the secondary market. Also, it represents a possibility to raise
capital in a foreign market such as the market of the United States, where they
could obtain more attractive interest rate (low cost of capital) than in the
country of origin.[18]
3. “Access to public market and private institutional
financing further reduces the cost of funding, relative to traditional bank
lending”.[19] The elimination of the originator’s
bankruptcy risk, in conjunction with intrinsic or third-party credit
enhancement, permits a higher credit rating for the asset pool than the
originator’s general obligations, which in turn reduces the rate of return
demanded by investors.”[20]
4. “Because a securitization is often view for accounting
purposes as a sale of assets rather than a financing, the originator does not
record the transaction as a liability on its balance sheet.”[21] Direct debt increases the debt ratio, while
it does not happens using securitization.[22]
5. “Securitization allows the originator to transfer all
or part of the credit risk associated with certain financial assets to a third
party”.[23]
[24]
6. “Securitization assists a financial institution in
meeting its capital adequacy standard by shrinking the size of its balance
sheet or permitting it to reinvest the proceeds of the securitization
transaction in new assets without increasing the size of its balance sheet”.[25]
d) Advantages of securitization to investors.
“In contrast to traditional lending arrangements, a
securitization is dependent upon investors’ satisfaction with the quality of
the assets backing the securitization, not the credit quality of the
originator. The investor, unlike
traditional lenders, does not bear the risks associated with the originator and
its business and instead rely upon risk-containing measures that are made a
part o the transaction”.[26]
e) Disadvantages of Securitization.
1. “The mortgagor of the securitized loans can lose the
close relationship and flexibility it would have with mortgagees, investors,
and mortgage bankers…Mortgage bankers lose servicing as the originators
securitize loans. Underwriting and
servicing standards suffer where there is a surplus of capital and the
originator does not retain any risk of loss. Lenders and investors will obtain
lower yields as the market becomes more efficient”.[27]
2. “The significant risk to investors is that a portion
of the mortgages will be prepaid when interest rates decline.”[28] “Even though prepayments are passed on to
the investors, prepayments reduce the size of the pool.”[29]
3. “To the extent the assets to be securitized are not
existing portfolios, additional risk to the sponsor may be associated with time
delays in accumulating product for the securitization to go forward.”[30]
4. “If the assets are denominated in a currency foreign
to the investor, the investor also faces currency risk.”[31]
II. Mortgage Securitization in the United States of
America.
“In the simplest form, as a “stand-alone Securitization”[32],
Mortgage backed securitization can be visualized:[33]
Holder of Mortgages or other income producing assets. Isolated Mortgages Issuer of Securities Investors. $
“Unless the originator is a regulated financial
institution which is not subject to the bankruptcy code, the securitization will
be structured to include a bankruptcy remote Special Purpose Entity (SPE)” as
shown below:[34]
Issuer of Securities. “Issuer SPE” A true Sale. Investors $ Bankruptcy Code Originator.
a) Players of securitization:
1. “Issuer (originator). The issuer is a special purpose
entity (SPE), which may be affiliated with the actual owner (the sponsor) of
the underlying assets. Having an SPE is
intended to eliminate disruption in the cash flow if the sponsor becomes
insolvent.”[35]
2. “Servicer. The
servicer performs collection and other functions required to manage the
underlying assets. The servicer usually
is the sponsor or an affiliate.”[36]
3. “Trustee. The trustee holds legal title to the assets
and has little or no discretion in the performance of its duties.”[37]
4. “Others. The investors, underwriters, credit enhancers
and rating agencies also participate in the structuring, in roles much as they
do in debt financing.”[38]
b) Structure of the process of securitization.
The process of securitization can be structured as
follows:
1. A pool (portfolio) of mortgages generating payments,
“with similar characteristics as to quality, term and interest rate”[39]
[40],
which are owned by the originator[41]
are sold to an entity known as the Special Purpose Entity (SPE),[42]
that is an intermediary entity, which purchases those rights of payment of the
mortgages by selling or issuing[43]
“interests” backed by the value of the conveyed mortgages and paid through
their liquidation.[44]
2. The assets are sold to the SPE in order to isolate the
assets from insolvency, default, or bankruptcy of the transferor and for
accounting or tax purposes.[45] The SPE is structured to be bankruptcy
remote from the transferor (originator) and other parties, such as the parent
of the SPE[46], which is
restraint from “engaging in any activity other than owing, and perhaps
servicing, the mortgages[47]. This mean that the SPE will not to be
allowed to have debts and therefore, secure for any bankruptcy proceeding.
“The SPE may be a Trust, corporation, or partnership.[48]
[49] More than one SPE may be required, for
example, the transferor may be required to transfer the assets to a SPE which
then transfers to a second SPE who issues the securities”.[50]
“When the originator of the mortgages is federally
insured, the rating agency may or may not require that the mortgages be
transferred to a SPE”.[51]
3. “The SPE can either directly or indirectly issue the
securities.[52] The Issuing SPE either (1) sells pro rata
interests (certificates) in the pool of mortgages to investors who receive
their share of the principal and interest paid into the pool,[53]
or (2) in a bond-type instrument borrows money from the investors, with the borrowing
being secured by the assets held by the SPE.
If the interests are sold to the investors this is referred to as equity
and if the SPE borrows the money this is a debt transaction.[54] The issuance of the securities can either be
the sale of a registered security or can be a private placement”.[55]
4. A crucial step in assuring the investors that they
will receive uninterrupted payments is performed by the rating of the
investment purchased by the investors.[56] The rating is done by the rating agencies
and this is necessary to make the investments marketable and liquid with the
result being that the yield required to sell them will be lower.[57] As part of the rating process the rating
agencies will generally require legal opinions that the agreement and liens are
enforceable and that the flow of payments will not be impeded by a bankruptcy
of an associated agency.[58]
In addition, in order to get a better rating, a third
party may provide Credit Enhancement “by issuing a Standby letter of Credit, a
corporate guarantee or the structure itself may provide the enhancement through
reserve accounts, cross-collateralization, cross-default, advance payment
agreements, loan replacement provisions and creating separate senior and
subordinated classes of securities.”[59]
“A credit rating is not a recommendation to purchase,
sell, or hold a particular security.
Ratings are invariably required to sell securities in the public
markets. Also, many financial
institutions that purchase asset-backed securities in the private markets
require ratings in order to satisfy either regulatory requirements, investments
guidelines, covenant restrictions, or internal policies.”[60]
It is to say, that the rating issued may be downgraded if there is a
substantial decline in the performance of mortgages.[61]
5. The Mortgages-Backed Securities that could be issued
are divided in three general classes: a) Pass-through certificates; b)
Mortgage-backed bonds, and c) Pay-through bonds.[62]
a). “A “pass-through” certificate is an instrument that gives
the owner (holder) direct undivided ownership in a portfolio of mortgage
loans”.[63] “Security holders receive all payments of
principal and interest in an amount based on their pro rata interest in the
pool, less required service fees.”[64] Originators deliver payment of principal and
interests to Ginnie Mae, who in turn delivers them to the Ginnie Mae securities
bondholders.[65] “If any of the mortgages are prepaid during
the term of the issue the payments are passed on to the security holders.”[66]
“The Ginnie Mae pass-troughs are essentially riskless
with respect to default because of a layering of financial safeguards”:[67] “First, the pass-throughs are backed by
mortgage loans held in trust for the certificate (securities) holders. Second, the mortgages themselves are covered
by the Federal Housing Administration (FHA) or the Veterans Administration (VA)
insurance. Finally, prompt payment
interest and principal is guaranteed by Ginnie Mae”.[68] “Because it is a direct agency of the United
States Government, Ginnie Mae pass-throughs are backed by the full faith and
credit of the federal government”.[69]
b) “Mortgage-backed bonds” (MBB’S) “are debt obligations
of the issuing institution.[70] “The issuer retains ownership of the
mortgage loans which collateralize (secure) the payment of the debt”.[71] “The investors receive an instrument
evidencing a percentage interest in the debt of the issuer.”[72]
C). “A “pay-through bond” is a hybrid of the pass-through
and the Mortgage Backed Bonds (MBB’s).[73] “Like the Pass through, the pay through bond
links interest and principal income from the mortgage pool to the bond interest
obligation and principal reduction”.[74] “Like the MBB, the mortgage loans
collateralize the bonds and become a liability to the issuer”.[75]
“Unlike either of the other bonds,
however, the pay-through bond enables an institution to liquidate low yielding
loans without having to write off a capital loss”.[76]
6. “After the sale, the
originator usually continues to service the accounts, making collections,
maintaining records, and enforcing delinquent accounts”[77]
c). Legal isolation against originator bankruptcy risk.
Issuers of Mortgage-backed Securities, other than
regulated financial institution, are subject to the Bankruptcy Code,[78] and their insolvency raise problems such as
the automatic stay and the preferential transfer problem:[79]
“The filing of the bankruptcy petition imposes an
automatic stay of all actions against the debtor.”[80] This stay obviously may cause delays in
payment to the holders of the securities, because the trustee of the collateral
pool will be prevented from liquidating the collateral for the benefit of the
security holders until they obtain relief by showing that their rights are not
“adequately protected”[81]. The trustee of the collateral must show that
the security holders will not be protected adequately unless they continue to
receive the cash flow from the collateral, or unless they are allowed to
liquidate the collateral.[82] Upon demonstration of the lack of adequate
protection the stay should be lifted within a reasonable period of time.[83]
The preferential transfer problem arises when the issuer
falls into bankruptcy and the trustee of the bankruptcy tries to avoid any transfer
of interest that the issuer have made on or within 90 days before of the date
of the filing of bankruptcy for or on account of an antecedent debt owed by
him, before such transfer was made[84] “However, as long as the securities holders
are fully secured creditors, and the value of the collateral is bigger than the
debt amount,[85] the
payments cannot be avoided as preferential transfer.[86] For that reason, “the investor in MBSs must
make certain there is a valid, perfected, first security interest in all the
notes and mortgages to be used as collateral for the issue”.[87]
[88] “Under chapter 7 (of the Bankruptcy Code), a
secured creditor’s lien must be fully recognized by the trustee to the extent
of the value of the creditor’s interest in the property.”[89]
Carlos Aiza Haddad comments that “no securitization
transaction will ever be successful if legal opinions are not rendered that
confirms that legal title to the assets is being transferred to the SPV, which
ultimately securitize them”[90]
“A crucial consideration, and perhaps the sine qua non,
of (securitization) is the effort to legally separate the credit quality of the
assets being securitized from the credit risk of any other entity involved in
the financing.”[91] “The quality of the assets securitized should
stand on their own and not be subject to being drug into bankruptcy of a
related party.”[92] “The structured is designed to isolate the
assets from third party creditors and from the originator.[93] The legal isolation is achieved as follows:
1. “The mortgages are transferred by sale from the
originator to a SPE. The transfer is
structured as a “True sale”, as contrasted with the transfer of only a security
interest in the assets, in order that the transferor retains no legal or
equitable interest in the asset.[94] “Thus, if the transferor later becomes
insolvent or files a petition in bankruptcy the (mortgages) will have been
transferred and will not be part of the bankruptcy estate of the transferor.”[95] Then, the investors will receive their
payments from the SPE without any interference of the automatic stay of the
originator.[96]
“To further isolate the assets (credits secured by
mortgages) from the insolvency or bankruptcy of any party, sometimes two-tiers
of SPE are utilized.”[97]
See the next example:
“A second-tier may be used because a trustee in bankruptcy of the transferor might establish that the transfer was not a “true sale”, in which case the trustee has considerable powers to alter the amounts received by the investors. In the second-tier, the intermediate SPE (1) deposits or sells the assets to an issuing SPE or (2) borrows from the issuing SPE and pledges the assets to the issuing SPE to secure the loan. That is, the transfer from the intermediate SPE to the issuing SPE is either a sale or a debt transaction. In any event, the second SPE isolates the assets from the insolvency or bankruptcy of the issuer.[98]
“If the transferor (originator) becomes a debtor in
bankruptcy, the bankruptcy trustee can allege that the transfer of the pool of
mortgages or income-producing property was not a sale to the SPE but rather was
a loan from the assignee/SPE to the transferor and that the transferred asset
is an unperfected security interest held by the SPE.[99] “An unperfected security interest may under
section 544(a) be avoided by the trustee in which case the assignee would be
only an unsecured creditor in the transferor’s bankruptcy.”[100] Whether the transfer is characterized as a
true sale or the transfer of a security interest depends on the intent of the
parties”.[101]
Because of the risk that the true sale of the mortgages
may be consider by a Court as an unperfected security interest, it is important
that the trustee in the pool of mortgages has a perfected security interest in
the payments of the mortgages in order to protect the security holders, “even
if the transfer (of the mortgages) is structured to be a Sale”[102]
“The only way for the purchaser to protect itself
completely is to perfect by taking possession of the promissory note”[103]which
is collateralized with the mortgages.
The trustee of the pool of mortgages will be the one who takes the
possession of the promissory notes for the benefit, or on behalf, of the
security holders.
(SPE as a bankruptcy remoteness entity)
2. “The transaction is also structured in such a way that
the SPE itself is not likely to become a debtor in bankruptcy and further that
the assets held by the SPE will not be subject to the bankruptcy of any other
entity such as the parent of the SPE and that the assets not be subject to
claims of creditors of the SPE”.[104] This, it is to become the SPE as bankruptcy
remote entity. [105]
“The SPE must hold itself out of the world as an
independent entity and must covenant that will do so.”[106] “Otherwise, a court may use the principles
of piercing the corporate veil, alter ego, or substantive consolidation to
incorporate the SPE and its assets into the parent’s bankruptcy proceeding.”[107]
“(i) Piercing the corporate level is the remedy the courts
use when the parent and the SPE have commingled assets and businesses and the
court treats the parent and the SPE as single entity.”[108] The remedy will be sought by creditors of an
insolvent parent who set up the SPE in order to reach the assets held by the
SPE”.[109] (ii) “The alter ego principle is used when
the SPE is the mere pawn of the parent.”[110] (iii) “Substantive consolidation would be
sought by the creditors of a borrower who had sold the assets to the SPE or the
creditors of a parent of the SPE if either the borrower/seller or parent became
a debtor in bankruptcy.”[111]
“The SPE or other issuer cannot be prohibited from filing
bankruptcy. The approach to avoid
voluntary filings is to require that the SPE be in corporate form and have one
or more “independent” directors.[112] The independent directors are stated to have
a fiduciary duty to the investors rather than the shareholders of the SPE.[113] Further, the SPE is prohibited from engaging
in activities outside its stated purpose of holding the collateral assets.”[114]
III. Mortgage Backed Securitization in Mexico
1. Introduction.
President Fox’s housing goal is to build in Mexico
750,000 houses a year by 2006[115]
and Mortgage-backed securitization is a good financial tool to accomplish
it. It is just in its early stage in
Mexico. There has been securitization
of assets like oil sales receivables, toll roads receivables, credit card
receivables, mining export receivables, but related to mortgages it is just
beginning.[116]
Historically, the impediments that securitization had
faced in Mexico were: (i) that trusts could not issue debt[117];
(ii) there were not (and still there are not) a system of security interests as
developed as the one in the United States, which favors self help remedies;
(iv) the foreclosure proceedings used to take long time; there was an old
bankruptcy law which was not designed to deal complex multi-national
corporations and sophisticated commercial financing[118],
and it was ambiguous which had lead to its inconsistent application by the
courts.[119]
“Because of these impediments in the Mexican market and
Mexican laws, Mexican securitization transactions (were) typically set up
through the United States, using American banks, currency denominated in
dollars, and the American securities market.”[120] With this, the securities obtained a better
grading by the rating agencies, because the Mexico’s sovereign risk (the
country’s ceiling) was not taken into account.[121]
Traditionally, the Mexican securitization involved future
receivables transactions.[122] The assets backing the securities do not
exist yet, but they are “reasonably predicted due to the nature of the business
activity that (produces) those cash flows”.[123]
Up to date, in Mexico there
is no one special law for securitization transactions such as in the case of
Argentina or other nations. The Mexican
legislator has been amending existing laws and creating new regulations and
institutions in order to allow and facilitate the adoption of the securitization
financing technique in the Mexican financing system.
Among the laws importantly amended to help securitization
we can mention: (1) The Law of Banking Institutions (Ley de Instituciones de
Crédito) thereafter LIC for its Spanish abbreviation; (2) the Civil Code for
the Federal District of Mexico (Código Civil para el Distrito Federal en
material Común y para toda la República en materia Federal) thereafter CCDF for
its Spanish abbreviation; (3) The Commerce Code (Código de Comercio); (4) the
General Law of Negotiable Instruments and Credit Transactions (Ley General de
Títulos y Operaciones de Crédito) thereafter LGTOC for its Spanish
abbreviation, and (5) the stock market law (Ley del Mercado de Valores).
And as laws recently created to facilitate securitization
in Mexico we can mention: (1) The Organic Law of the Federal Mortgage Agency
(Ley Orgánica de Sociedad Hipotecaria Federal) and its regulatory rules, and
(2) The Transparency and promotion law for competition in the secured credit (
Ley de Transparencia y de fomento a la competencia en el crédito garantizado).
Since 1994, changes have occurred in the Mexican legal
system that will help to develop a mortgage-backed securities market within
Mexico. These changes enclose, among
others, the creation of new entities able to act as originator and/or as SPEs,
and in the reduction of formalities for the transfer of loans backed by
mortgages or guaranty trusts. The goal
of the Mexican government is to raise funds in order to finance the construction
of houses and drop the big deficit in the housing sector.[124]
2. Mortgage Originators.
Traditionally, the source of housing financing in Mexico
is found in the government, at the federal and State level, and in the private
sector through banks. The government in
general terms used to finance low income housing for workers and for
State-workers, and the private sector, represented by banks, used to finance in
general terms mid and upper income housing.
Things have changed and this formula is not any more operating in
Mexico, the government is not able to satisfy with its own resources the demand
of housing of the growing population and neither the commercial banks. The government still is the principal
financing entity for low income and workers housing, but its entities are
moving towards securitization in order to extend their financing, and to reduce
credit risks from the government.
a) Public originators.
As Mexican government agencies originators we can list:[125]
1. The Institute of the National Housing Fund for Private
Sector Workers (Instituto Nacional del Fondo para la Vivienda de los
Trabajadore) thereafter INFONAVIT, for its Spanish abbreviation.
The INFONAVIT is an entity created in 1972 by
constitutional mandate which purpose is the raise of a fund in favor of workers,
paid by employers, to finance housing credits for the first mentioned, in the
form of loans backed by mortgage (Hipoteca).
The entity is funded by a bimonthly 5% payment over the wage of the
workers, and it is not a tax, it is “prevision expenses (gastos de prevision)
of the employers[126]. The Institution grants and services the
credits according to its special law and regulations, and the institution
counts with insurance paid by its own for cases were the workers fall into a
disability and they cannot work any more and subsequently cannot pay the
loans. Every worker may get only one
credit. “During recent years, the
organization has introduced a number of important reforms, including changes in
top management, increased organizational transparency, and improved systems and
collection procedures.”[127]
However , we consider that this originator is not, for
now, an adequate candidate for the securitization of its accounts receivables,
because (1) the flow of payments to the Fund depend of third party employers,
who shall discount from their workers wages the amount due to the Fund,
existing the possibility that they could stop paying in any time; (2) the
worker who lose his job may apply for a deferment of payment up to12 or 24
months; and (3) it is not specified in the INFONAVIT law that the Institution
is legally entitle to issue securities backed by its account receivables. In the year 2002, INFONAVIT extended 275,000
loans throughout Mexico.[128]
2. The Housing Fund for Public Sector Workers (Fondo de la
Vivienda para los Trabajadores al Servicio del Estado) thereafter FOVISSSTE for
its Spanish abbreviation.
Created in 1972, also by constitutional mandate, the
FOVISSSTE is a Fund with similar characteristic to the INFONAVIT fund, with the
difference that FOVISSTE only benefits workers of the Federal Government and it
is paid by the federal government (actually by the tax payers) over a base of
5% the wage of the workers. The loans
are secured by mortgages or by personal guaranty. The FOVISSSTE grants and services the credits and have worker’s
disability insurance, as well. Every
worker may have only one credit. The
State or Municipal governments may agree to bring their workers to the benefits
of this Fund, obviously by making the correspondent payments.
Specifically related to securitization, we consider that
this originator is not also, for now, an adequate candidate, because (1) it is
not expressly permitted in its law and regulations to securitize its
receivables, and (2) the flow of income could be stopped by a deferment of
payment up to 12 months in case that the worker stops working for the
government.[129] There is no insurance against this
deferment. From 1973 to 2000, FOVISSSTE
has granted 532,930 credits.[130]
4. Government Very Low Income Housing Trust (Fideicomiso
del Fondo Nacional de Habitaciones Populares) thereafter FONAPO.
FONAPO, created in 1981,is a public trust created to
finance the construction and improvement of low-income housing. The targeted population are non-waged people
with income from 2.5 a 4 minimum wages and they receive credit that is secured
by mortgage or other.[131] The credits are granted and serviced by
FONAPO and the borrower has to pay for insurance for the case of non-payment
due to death or illness.
In respect to securitize the accounts receivables of this
Trust, it could be soon if the federal government guarantees on-time payments
and it grants the power to the trust to issue bonds to be sold to institutional
investors. From 1982 to date, FONAPO
has granted 601,082 credits throughout Mexico.[132]
Despite that the entities above mentioned are headed by
government authorities “they run separate and uncoordinated direct mortgage
lending programs at the federal and State levels”[133] This “segmentation of the housing finance
system into a series of independently funded and administered government
programs has led to a very high degree of heterogeneity of mortgage pools that
are neither well standardized, documented nor serviced.”[134]
FOVI and SHF.
In addition to the originating government institutions briefly described, the Mexican federal government has established since 1963 the Housing Insurance Trust Fund. (Fondo de Operación y Financiamiento Bancario de la Vivienda,) thereafter FOVI for its Spanish abbreviation, which is a trust with the purpose of financing the acquisition and construction of low-income housing through fina