Recent reform of Mexico's INFONAVIT law improves the asset quality of new mortgages south of the border and makes securitizing them more attractive, according to a new Moody's Investors Service report.
Moody's singles out as one of the most significant items from a credit perspective a change that gives the Instituto del Fondo Nacional para la Vivienda de los Trabajadores (the National Workers' Housing Fund Institute) the ability to originate peso-denominated mortgages.
To date INFONAVIT has originated loans denominated based on the minimum wage or Veces Salarios Minimos (VSM), which is updated yearly in Mexico. This created a mismatch with the bonds, which are denominated in inflation-adjusted Unidades de Inversión (UDIs), which are updated daily.
“Peso-denominated mortgage loans provide more payment certainty for borrowers than indexed loans, because the outstanding balance of a peso loan does not automatically increase (every month or every year) as it does with indexed loans,” Moody's said in its report. “This is a powerful feature that will enhance a borrower's willingness and ability to pay, especially when a borrower loses his job and INFONAVIT cannot continue to make automatic payroll deductions for mortgage payments.”
Moody's said if securitizations also are issued in pesos it could reduce structural risk to Mexican residential mortgage-backed securities as they would not have currency mismatches between the pools of assets and the notes.
