Fox Tries to Boost Mexico’s Housing

President Vicente Fox is trying to breathe life into Mexico’s moribund housing industry by creating a viable mortgage market in a country where home loans are often too expensive or unavailable on any terms to potential buyers.

Loan scarcity is a big reason why Mexico’s housing shortage is reaching crisis proportions. The country’s housing deficit is now at more than 3 million units and growing at 300,000 per year, said panelists at the Mexican Bankers Assn. meeting here over the weekend.

Last year, Fox established the Federal Mortgage Assn., an agency resembling Fannie Mae and Freddie Mac that will seek to ensure a continuous flow of funds to lenders by repackaging mortgages into securities that are sold to institutional and other investors. Operations began this month with the goal of increasing the number and lowering the cost of home loans.

Speaking to the bankers group, Fox promised a legislative initiative to free up mortgage funds by giving lenders stronger legal recourse in collecting loan collateral. Weak collection and eviction powers are among the reasons why banks and mortgage lenders have retreated from the market since Mexico’s 1995 economic crisis.

Fox’s initiative will depend on cooperation from the Mexican congress, which so far has been unreceptive to Fox’s reform efforts in other areas of the economy, including energy and taxes.

Fox also wants to give managers of individual retirement accounts, called afores, the right to invest in mortgages, said Manuel Zepeda, general director of the Federal Mortgage Assn.

Standardization of Mexico’s appraisal industry and modernization of how property and liens are recorded also are to be included in the Fox plan, Zepeda said. Arbitrary and--by U.S. standards--incomplete recording practices also have worked to discourage many mortgage lenders here.

Although the outcome of the Fox initiative may be uncertain, economists at the bankers’ association meeting emphasized that the weak housing and mortgage markets are taking a toll on Mexican society and economy.

Glaring evidence of the social costs can be seen in the shanty towns that ring most Mexican cities. To the east of the Mesa de Otay manufacturing zone in Tijuana, thousands of maquiladora workers who can’t afford or find more substantial dwellings live in squalid neighborhoods with no running water, sewers or paved streets.

By any standard, Mexican lending in general and home mortgages especially are extremely weak when compared with other countries.

Zepeda said total home loans outstanding equal just 5% of Mexico’s annual economic output. That compares with more than 60% in the United States.

The scarcity of housing is limiting Mexico’s economic growth on a macro level and in terms of individual wealth. Mexico doesn’t enjoy the “multiplier effect” that a strong housing industry has for creating jobs and business formation.

On an individual level, there is less wealth being created because owners of shacks or substandard housing do not enjoy the home equity that those who own titled real estate do.

Mexico’s credit problem is not restricted to mortgages. There is a shortage of all sorts of consumer and business loans. Overall credit in Mexico, which includes all kinds of private loans, equals 29% of the economy, compared with a U.S. loan portfolio that equals 170% of the U.S. gross national product, said Arturo Fernandez, director of the Autonomous Technological Institute of Mexico, known by its initials ITAM.

Studies show that raising Mexico’s private loan portfolio from its present 29% to 70% of total economic output would add two percentage points to the annual economic growth rate, Fernandez said.

Zepeda of the Federal Mortgage Assn. said mortgage lending--and the housing industry generally--is poised for an upturn. His new agency expects to underwrite 70,000 fixed-rate loans this year.

Borrowers who qualify can get loans by putting down only 10%, not the 40% down payment that has been required of applicants in recent years. The down payment is being lowered because his agency is effectively guaranteeing to reimburse lenders for the first 25% of loan losses.

Interest of foreign home builders and mortgage companies is rising. General Electric Co.’s GE Capital and Dutch financial giant ING recently have acquired or started mortgage finance operations in Mexico. Home builders, including U.S. giant Pulte Homes Inc., have raised construction targets for 2002.

“They feel it is a reality that there will be great growth in Mexico,” Zepeda said.