New York – As the consequences of the sub-prime mortgage meltdown in the United States spread through global markets, will one of the most positive trends in Latin America – the expansion of local credit markets, which has dramatically expanded access to homeownership throughout the region –be jeopardized?
Big multinational banks and mortgage lenders have moved into markets across Latin America, providing financial services that allow lenders to better manage risk. Banks are creatively tapping into migrant worker remittances, multiple-family households, and other previously overlooked sources of potential income and creditworthiness. Similarly, the spread of microfinance lending has made capital available to borrowers who until recently were not seen as creditworthy.
So far, the sub-prime crisis has had a limited direct impact on Latin America’s mortgage markets. In Mexico, the market for new low-and middle-income housing has grown rapidly, thanks to the creation of a market for residential mortgage securities in 2003. In the last quarter of 2007 alone, Mexican issuers sold $1.5 billion in new mortgage-backed securities – a significant portion of $4.4 billion outstanding – with only a slight drop in prices to reflect globally induced risk, according to the publication Asset Securitization Report . Chilean markets also have stayed relatively calm.
These markets have been insulated in part because most investment in real estate-backed securities has come from local investors who often need to invest in local-currency markets. Most important, Latin America’s mortgage markets and homeowners are very different from those in the US.