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 financial intermediaries.[135] FOVI does not grant and service credits, but instead it acts as a second tier bank[136]