The BORHIs market in Mexico has based its functioning on rules clearly established and implemented by Sociedad Hipotecaria Federal (SHF), making it substantially more solid than subprime structures.
To qualify for this rating, BORHIS must possess a series of characteristics that guarantee the solidity of the issue, the principal, and yields for the investors that acquire them; to mention a few:
• They have different credit enhancers (mortgage insurance, partial or total financial guarantees, mezzanine bonds, and cash reserves), thanks to which an issue can withstand losses on average of up to 35% before defaulting on the investors.
• They have a principal that the mortgage originator (manager) contributes to the structure, through which , it absorbs the first losses. This aligns incentives to ensure the manager’s efficiency in collections.
• They have at least two ratings of creditworthiness, equivalent to the highest domestic investment grade.
• All the mortgages contained in the BORHI structures have down payments and were granted to borrowers with good credit ratings at the time of origination.
• Each mortgage contained in a BORHI has been reviewed by a third party different from the originator, and has a complete and properly compiled credit file.