Argentina could have an equivalent of Fannie Mae and Fannie Mac within three years, according to the country’s leading bankers.
Total mortgage lending is expected to rise by 45% this year to 3.6bn pesos ($1.18bn) from 2.5bn pesos last year. However, volumes have not yet recovered to the levels seen before the severe economic crisis of 2001, when total lending amounted to 4.6bn pesos in 1998, for example.
Currently, there is a huge mismatch between the duration of time deposits, mostly 30 to 60 days, and the duration of mortgages, up to 30 years, creating an acute liquidity problem. Experts say much greater levels of securitisation or an equivalent of Fannie Mae are essential to fill the gap. Fannie Mae (Federal National Mortgage Association) is a US government-backed corporation that buys mortgages on the secondary market, pools them and sells them as mortgage-backed securities to investors on the open market.
Search for solution
Mario Vicens, president of the Argentine Bankers’ Association, says: “Banks don’t have the financial resources to fund mortgages for the terms needed. One of the solutions must be more securitisations. The challenge is to ensure the country’s pension funds can easily take part in the securitisations if they wish to.
“The other option is for an equivalent of Fannie Mae, an entity that specialises in buying mortgages from banks. I am optimistic that sooner or later this could be established in Argentina.”
He says the biggest problem for the mortgage market since the crisis has been that properties have continued to be priced in dollars while people earn their salaries in pesos. Home loans have been calculated on multiples of the salaries, but these have not been high enough to purchase properties.
With salaries currently rising a hefty 15% per year and the expectation that this will continue, Mr Vicens points out that the relationship between salaries and property prices looks set to normalise, leading to increased demand for mortgages. He expects a Fannie Mae-like institution to be created within three years.
Regional models
Carlos Weitz, the former head of Argentina’s Securities and Exchange Commission, agrees: “In Latin America, there exist two interesting examples of institutions that offer liquidity to the mortgage market: the Federal Mortgage Society in Mexico and Titulizadora in Colombia.
“It would be possible to introduce this type of agency in this country and, under the right protective framework, it could be beneficial,” he says.
In August 2006, in a bid to make Argentina’s mortgage market more flexible, the central bank issued lenders with new guidelines allowing them to provide mortgages of up to 100% loan-to-value (LTV) on amounts up to 200,000 pesos and 90% on sums up to 300,000 pesos.
Since the crisis, mortgage borrowers have had to provide a deposit of more than 25% LTV, effectively placing home loans beyond the reach of most Argentines.
About 15 banks are considering offering the new mortgages, including state-owned banks Banco de la Nación, Banco de la Provincia de Buenos Aires, and Banco Ciudad; private banks BBVA Banco Francés and Banco Río; and the partly state-owned Banco Hipotecario.
Alberto Saravia, chief executive of Buenos Aires-based fund manager Saravia Finance Management, says: “The government’s reforms could triple the size of the mortgage market. However, the big problem is the complete lack of long-term capital.
“I cannot see the private banks getting involved in this current initiative in a big way because potential profits seem low. The state will have to arrange for the loans to be securitised, and oblige the pension and life funds with $30bn under management to fund the securitisations.”
Furthermore, the country’s Congress is expected to imminently pass legislation that will refund value-added tax to property developers constructing homes for the rental market. The government wants to reduce rental inflation, which is rising at 20% annually.
