Following a sharp decline in economic growth last year, the Mexican residential mortgage-backed securities (RMBS)market is looking to make a comeback. During 2013, the Mexican economy’s growth slowed to approximately 1.2%,affecting both job creation and disposable income for households, a negative for RMBS performance. In 2014, however, Standard & Poor’s Ratings Services anticipates a better macroeconomic environment, with a GDP growth rate of more than 3% and stronger job creation, both of which are expected to positively affect transaction performance. On the other and, challenges may come from the fiscal reform passed in January 2014 (which will negatively affect the disposable income of mostly middle- and higher-income households) and the performance of loans targeted to low-income borrowers, which will continue to be generally weak. Overall, we don’t expect major changes in the performance of existing Mexican RMBS transactions. Deals by the two largest and most recurrent issuers, Fondodela Vivienda del Instituto de Seguridady Servicios Sociales de losTrabajadores del Estado (Fovissste) and Instituto del Fondo Nacional de la Vivienda para los Trabajadores (Infonavit),will continue to perform well. Securitizations by most retail banks, however, could be the most affected by the fiscal reform, although we believe that most of them will be able to weather the storm.
The return of private originators in 2013 to the market through BBVA Bancomer S.A. (BBVA Bancomer)’s MXN4.19billion BMERCB 13 transaction compensated for Infonavit and Fovissste’s decreased securitization appetite, as their volumes decreased by 16.7% and 11.6%, respectively. This year should bring a similar volume and mix of new issuance as last year, when new issuance reached MXN30.26 billion, an increase of only 0.5% over 2012. In the long run, however, we see a renewed potential for mortgage securitization growth thanks to better expected economic and labor market growth, low (albeit, upwardly pressured) interest rates, and an improved framework for the recovery of defaulted loans coming from the financial reform signed into law in January by President Enrique Peña. This reform also included an enhanced mechanism to refinance existing loans, which could push prepayments upwards in the coming years, mostly in loans originated by retail banks. Nonetheless, we believe that these factors will also be subject to the approval and implementation of the secondary laws that will govern the reforms.