Mexico Will Aid Banks, Homeowners

MEXICO CITY — Underscoring the continued fragile condition of the economy, the Mexican government Thursday unveiled a major plan to assist the country’s bleeding banks and debt-strapped homeowners whose mortgage payments have skyrocketed.

Under the program, to cost at least $3 billion, the government will pay as much as 30% of Mexicans’ monthly mortgage payments. A staggering 30% of Mexican loans are past due, as soaring interest rates make mortgage payments impossible for many citizens.

It is the latest and most ambitious effort to attack the country’s mortgage crisis since last year, when a peso devaluation touched off a profound recession.

The need to repeatedly bolster the crippled banking system and rescue homeowners illustrates how weak Mexico’s economy remains, despite a series of positive statistical indicators in recent weeks.

The plan comes amid rising political pressure for a more drastic solution. With nearly a third of their loans past due, the country’s beleaguered banks have sharply curtailed lending, slowing the economy’s recovery.

“With this program, we will promote a culture of repayment, since a debtor will have to be current in his obligations in order to enjoy its benefits,” said Finance Minister Guillermo Ortiz during a ceremony at the presidential palace.

Independent analysts are divided over the program’s likely impact. But they said that at the very least, it will probably keep more homeowners from defaulting.

“It’s good news,” said Alberto Sanchez, Latin American bank analyst for Bear Stearns & Co. in New York. But he added, “I don’t think it’s going to be the solution to all the problems of the Mexican banks.”

Most mortgage loans in Mexico are floating-rate. Thus, borrowers were stung when inflation surged during the recession, driving interest rates as high as 100% last year.

Currently, mortgage rates from commercial banks are about 35%--and that’s for homeowners who have already restructured their loans under a previous government assistance program.

The real problem is homeowners who have missed payments. Those debts are added to the loan’s principal, along with late charges. When high interest rates are applied, such mortgages often balloon to values greater than the house itself.

“Even if there’s a reduction in monthly payments of up to 30%, that might not be enough for some people,” Sanchez said.

Under the program announced Thursday, the government will pick up a portion of homeowners’ monthly mortgage payments, starting with 30% this year and descending to 5% in 2005.

To qualify, borrowers must join a government debt-restructuring program by Sept. 30 and catch up on overdue payments.

However, the program faces a perilous year as banks convert to stricter U.S. accounting standards.

The new mortgage assistance plan “is going to help stop the deterioration in asset quality and could help improve it,” said Susana Ornelas, a bank analyst at ING Baring Securities in Mexico City.

The program could also blunt a debtor revolt led by El Barzon, an organization of angry middle-class borrowers. Many members of the increasingly influential group refuse to pay their bank loans.

In apparent response to El Barzon’s popularity, both of Mexico’s major political parties, PRI and PAN, recently announced debt-forgiveness proposals.

The plan announced Thursday comes on top of $12 billion in other aid programs for the banks. The government is trying to spread out the costs over 30 years.

“We are adopting these debtor-relief programs responsibly, to avoid bigger costs from the crisis and contribute to a recovery,” President Ernesto Zedillo said Thursday.

“But we’re not kidding ourselves, and no one else should, either,” he said. “These programs are being financed by charging against the future possibilities of social and productive investment in the country.”