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EVOLUCION DE LA CARTERA
Hipotecaria Su Casita S.A. de C.V.
The Expansion and
Future of Sofols in
Mexico
Housing Finance Systems in Emerging Economies
World Bank Group Conference
Session 3 The Role of the Specialized Housing Lenders
March 15
Manuel Campos Spoor
Hipotecaria Su Casita
Su Casita’s profile
• 120,000 mortgages in
the last 10 years.
Current portfolio 105,000.
• Financed the construction
of 160,000 new homes.
• 22,000 new loans in
2005.
• Active in Infonavit
cofinancing and Fovissste.
• US$3B portfolio under administration.
• Average loan US$30,000, average income of client $1,000.
• Over 130 offices in Mexico and the US.
• Total issuances in 2005 US$711 MM including mortgage
and Construction loans securitization and Cross Border
Construction loan issuance.
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
What is a Sofol?
• The Sofols (Sociedad Financiera de Objeto Limitado) were born
in 1993 as a result of NAFTA, with a limited scope. Next Mexico
entered its’ worst economic crisis in history.
• In the last 13 years they have been a success story granting
over 13 MM loans and represent 10% of Mexico’s
financing.
• They are specialized financial institutions that grant
Mortgage, Consumer, Automotive, Agricultural and other kind
of loans (i.e. Working Capital).
• For the past three years they have successfully competed
with commercial banks that have returned to the market.
• The current administration has decided to deregulate the
sector and eliminated the limited scope restriction. The
Sofols have to decide: “What do to do when we grow up”
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
1994 worse than 1984
• In the NAFTA negotiation the figure was created.
• The Mexican financial system was dominated by commercial
banks that channel 76% of all resources.
• When Mortgage Sofols started operations no sources of
funds existed (One time loan right auction).
• In December 1994, the “Tequila Crisis” resulted in the
biggest economic crisis in history and a collapse of the
Mexican Banking system (Opportunity).
• Opportunity. The Sofols, which were just starting operations,
were not affected by the crisis (No loans). In the case of the
Mortgage Sofoles we became the sole intermediary of FOVI
(Now SHF) as the banks closed all their mortgage programs.
1994 was bad for some and good for Sofols.
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
Present Situation
Number and Portfolio of Sofols
• There are 58 Sofols that 70 25
manage a portfolio of 60
20
US$20B, 2.6% of GDP. 50
US Billion
15
Number
40
• Mortgage loans 30 10
represent 63% of balance. 20
10
5
• 3.2 MM loans were 0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
originated last year, mostly Loan Balance Number
personal and working
capital loans. Sofol by Specialization
20
• 30% of funds come from Mortgage
issuances in public markets 15
Automotive
and less than half from 10 Consumer
development banks. 5
Agricultural
Working capital and
0 other
1994 2005
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
Participation in Financial Sector
• The Sofols are a significant player in the market. They
represent 10% of credit.
• They serve the middle and lower market, more than 50%
of clients have incomes below 8 MW.
• In the case of mortgages, 85% of loans are for families that
earn less than 12 MW.
Sources of Financing
100%
90%
80%
Debt and Other
70%
Public Debt
60% Infonavit
50% Sofoles
40% Development Bank
30% Banks
20%
10%
0%
1994 2005
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
Mortgage Sofols profile
• Two products: mortgages
and construction lending
(Bridge loans). Mortgages Originated by Sofols
• Two business: Origination 160,000
and collection. 140,000
• In the last ten years: 120,000
– Have originated over 100,000
850,000 mortgages. 80,000
– Financed 1.4 MM new 60,000
homes. 40,000
20,000
• Portfolio of US$12 Billion. -
• Equity of $1.1 Billion. 1995 1997 1999 2001 2003 2005
Loans Fovisste
• Focused in serving the
affordable market(4-15 MW)
over 50% of population.
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
Business model (Success factors)
6%
• Specialized in the
6%
4%
origination and collection of 12%
mortgages and construction 52%
loans.
• Collection adapts to the 20%
client.
SHF Public Debt and securitization
– Hand deliver statements. We Commercial Banks
International FI
Development banks
Other funding
collect door to door. Total Secutization of Loans
– When the client in problems we
try to work out a solution.
$2,500
$2,000
• Funded though other financial $1,500
institutions and public debt. $1,000
Ultimate bet: Securitization. $500
There are US$2.3 Billion in the $0
1º 03 2º 03 1º 04 2º 04 1º 05 2º 05
market.
Bridge Loans Mortgages (Sofol) Mortgages (Infonavit)
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
How?
• It is clear that the growth of the Sofoles has been a success
story.
• The Sofols are part of the Housing Finance System
complementing the banks and Government Institutions
• The Sofoles serving a large part of the population (Middle
market potential 40% of population).
• Two questions need to be answered:
– How did it happen?
– What happens next?
Surviving Growing Up Market
Garage Industry Consolidation
(94-98) (99-02) (03-06)
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
1º Surviving
• The Sofols distributed FOVI funds half of them with subsidy.
• Showing that we were viable was the challenge.
Surviving Growing Up Market
Garage Industry Consolidation
(94-98) (99-02) (03-06)
• The collection
model was being
Market Focus Affordable (VIS)
developed
New Homes
• 100% of funding
Products A and B1
came from
(Up $22K)
FOVI.
Funding FOVI, subsidy
Reduced
Collection On site
Process Simple basic
Systems (Excel)
Competition None
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
2º Becoming market entities
• Market funding, issuances and loans. Broader markets.
• Reaching volume and independent construction funding.
Surviving Growing Up Market
Garage Industry Consolidation
(94-98) (99-02) (03-06)
Market Focus VIS and • First issuance,
Lower middle (M) FOVI stops
Products Broader coverage funding
(Up to $70K) construction.
Funding SHF and market • 84% of funding
No Subsidy came from SHF.
Collection On site and
bank branches
Process Cottage systems
More sophisticated
Competition Banks return to
Market
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
3º Established players. Competition
• Bank re-entered the market. Increased competition.
• Banks and international players buy or invest in Sofols.
Surviving Growing Up Market
Garage Industry Consolidation
(94-98) (99-02) (03-06)
• 1º Securitization.
Market Focus All range New & • Some portfolios
Used Udis & Pesos exceed US$1 B
Products Cofinancing • 52% of funding
(Up $250K) comes from SHF.
Funding SHF commercial • The Sofol
Banks, x-border operational model
securitization has proved it
Collection On site and works.
bank branches
Process Sophisticated
systems (Bank Core)
Competition Aggressive
Purchase of Sofols
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
Next Stage: Turning Point
• The law is changing so the Sofol will disapear.
• It will become a Multiple object financial institution or a Bank
Surviving Growing Up Market Bank or
Garage Industry Consolidation Sofom
(94-98) (99-02) (03-06) (07-
Market Focus How not to loose
lower income.
Products Next home, HEL,
Other loans, x selling
Funding Securitization,
Warehouse,
Deposits (?)
Collection Improve systems
Process Better Information
Reduce costs.
Competition With banks and new
entries (Deregulation).
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
Questions to consider
• The efficiency of the secondary market model against portfolio
based lending.
• What are the needs of the client.
– One product vs. portfolio of products and services.
– Deposits are a source of funds or a product.
• How to continue in the affordable housing market while our
market coverage increases.
• Collection system (Door to door vs. Checking account debit).
• How to incorporate technology to reduce costs and broaden
market coverage.
• What is the best figure? Bank or a Non Deposit Financial
Institution
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
Evolution of Mortgage Sofols
• The Mortgage Sofoles started as “garage startups” they have
to become world class players funded through the SMM.
Surviving Growing Up Market Bank or
Garage Industry Consolidation Sofom
(94-98) (99-02) (03-06) (07-
Market Focus Affordable (VIS) VIS and All range New & How not to loose
New Homes Lower middle (M) Used Udis & Pesos lower income.
Products A and B1 Broader coverage Cofinancing Next home, HEL,
(Up $22K) (Up to $70K) (Up $250K) Other loans, x selling
Funding FOVI, subsidy SHF and market SHF commercial Securitization,
Reduced No Subsidy Banks, x-border Warehouse,
securitization Deposits (?)
Collection On site On site and On site and Improve systems
bank branches bank branches
Process Simple basic Cottage systems Sophisticated Better Information
Systems (Excel) More sophisticated systems (Bank Core) Reduce costs.
Competition None Banks return to Aggressive With banks and new
Market Purchase of Sofols entries (Deregulation).
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
Thank you
Manuel Campos Spoor
Vice-President
Hipotecaria Su Casita
Questions:
Email: mcampos@sucasita.com.mx
Phone: (52)-55-5481-8306
Or
Mark Zaltzman
Director Corporate Finance
Email: mzaltzman@sucasita.com.mx
Phone: (52)-55-5481-8365
Housing Finances Systems in Emerging Economies
Session 3: The Role of the Specialized Lender
World Bank Group Conference
PLANECIÓN
