NEW YORK--(BUSINESS WIRE)--President Pena Nieto's affordable housing policies may have negative consequences for existing private-sector RMBS sponsored by Sofoles. This segment has already been hit with an increase in REOs as foreclosures have risen and servicers have been slow to dispose of existing inventories. Fitch Ratings believes the policy changes could put further pressure on future sales of these REOs as prospective new home buyers are lured closer to urban centers by potential incentives. RMBS servicers will continue to compete to unload these nonperforming assets that in many cases are concentrated in some of the outlying areas within Mexico.
With legal and maintenance costs rising and the sales cycle lengthening for this segment, we may see additional pressure on recovery rates that have already decreased over the past three years from 70% to 50% on Fitch-rated RMBS transactions.
It remains unclear how these policies will impact existing housing supply in the short and medium term, as many major homebuilders continue to face financial difficulties that may curb supply, providing potential pricing support.
President Pena Nieto's strategy on housing affordability has focused on three main areas: better coordination on housing policy, intelligent and sustainable urban development processes, and growth in housing supply to cope with demand while improving quality of life.
Many of these polices are designed to promote housing projects -- either vertically or horizontally constructed -- closer to city centers. The new Secretaria de Desarrollo Agrario Territorial y Urbano is the federal body supervising these changes.
For the leading Mexican homebuilders, these policy objectives will cause a strategic shift away from building large developments of mainly single-family homes on city peripheries. Homebuilders are redefining their construction strategy and re-sizing in order to manage these policies.
Infonavit (the country's main funder of construction projects) announced it will set up a fund to promote multifamily construction. Infonavit will pay to homebuilders 70% of the project's value when the construction is halfway completed. Earlier this year, the Sociedad Hipotecaria Federal (a national development bank) announced it will provide first-loss partial credit guarantees for up to 30% of commercial bank funding granted to homebuilders. These measures will assist homebuilders to adapt to the changing landscape within the country in order to mitigate any potential disruption in housing supply.
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