Mortgage Program for Mexican Migrant Workers Second International Conference on Migrant Remittances London, November 2006
Contents 5 I. Introduction II. Mi Casa Program in Mexico
What is SHF 6 Government financial institution created in 2002 with the mandate to foster the development of primary & secondary mortgage markets. Have full faith & credit of federal government on risks taken through 2013 and must be self-supporting afterwards. Today act as wholesale mortgage bank & guarantor. SHF provides long term funding to financial intermediaries and hedges the inherent interest rate risk. SHF cannot lend directly to the public. SHF also offers mortgage insurance, financial guarantees on bonds and a cover against real minimum wage depreciation (to allow homeowners to have payments linked to minimum wage inflation).
Remittances: Mexican Case 8 In the case of Mexico, remittances are the second source of capital inflows, after oil. They surpass tourism and FDI. It is estimated than more than 22 million people of Mexican origins live in the United States (around a fifth of total population) Estimates suggest that these migrants generate around 5% of US GDP. (Banco de México) Incomes of these workers have been rising strongly during the past five years as they have been moving from agriculture to services.
Remittances are Mainly used to Finance Current Expenditures 9 Relative Distribution of Remittances % del total 78.0 7.0 5.0 4.0 1.0 1.0 Current Education Savings Others Investments Housing Expenditures Source: Fomin and Pew Hispanic Center
Costs of Sending remittances have been falling 10 Thanks to higher access to banking, technological advances and higher transaction volumes 13.0 Cost of sending remittances to Mexico (%) 9.2 8.1 7.4 7.3 2000 2001 2002 2003 2004 Source: Pew Hispanic Center
However, costs are high relative to other Latin American countries 12.1 11.3 10.6 Cost of Sending Remittances* (%) 8.9 8.6 8.2 7.3 7.3 7.3 6.9 6.4 5.8 5.6 5.4 7.9 11 Cuba Rep. Dominicana Jamaica Haití Venezuela Bolivia México Honduras Guatemala Nicaragua Colombia El Salvador Perú Ecuador Promedio * From USA; 2004 Source: PEW Hispanic Center.
Mi Casa Housing Program 12 Is a program designed by SHF whose main objective is to allow Mexicans living in the United States to buy a house in Mexico. Mortgage payments are done in the migrant worker s place of residence. Collection is done by a Mexican Sofol (sometimes they outsource to an American financial institution) and no commissions are charged. The house has to be in Mexico and acts as a collateral to the loan. Mortgage is underwritten using standard guidelines, but allowing informal workers different income-verification alternatives. Loans are denominated in Mexican pesos.
Mi Casa Housing Program 13 Workers have the following income verification alternatives: Payroll stubs Income declarations Checking or saving account statements Credit card statements Employer letter Saving program (6 months) In addition, credit history is not a requirement for these type of loans.
Mi Casa Housing Program 14 SHF provides long-term funding to the Sofol that finances the mortgage. In addition, SHF provides mortgage insurance that covers 25% to 35% of the loan s unpaid balance (first loss). This means that a loss sharing mechanism is in place between SHF and the Sofols, which makes it a good example of a public-private partnership.
Mi Casa Housing Program 15 Housing Value Loan-to-Value Loans Up to $160,000 (1.8 million pesos) Up to 90% of House Value Payment to Income Up to 33% Payment Frequency Monthly Amortization Scheme Annuity Term 5, 10, 15 and 20 years Interest rate Fixed during the life of credit Type of house New and Existing Prepayment No prepayment fee
Credit Comparison 16 USA vs. Mi Casa Program $12,000.00 $10,000.00 $8,000.00 $6,000.00 $4,000.00 $2,000.00 $0.00 1 13 25 37 49 61 73 85 97 109 121 133 145 157 169 181 193 205 217 229 Payment in pesos Dollars converted into pesos Exchange rate scenario: 50 cents depreciation per year. Rates of 7% (USA) and15% (MEX)
Program Advantages 17 Incentives a more productive use for remittances: financing infrastructure Facilitates return of migrant workers to their country of origin Helps relatives of migrants to save in a productive form Funds are transferred in a secure and efficient manner Commissions are not paid by worker (as it happens with traditional remittances) Incentives public-private partnerships
Mortgage Program for Mexican Migrant Workers Second International Conference on Migrant Remittances London, November 2006