The Latin American Mortgage Market.

Because of the close ties between the United States (US) and the Latin American region, the question naturally arises, `How will the difficulties with the sub-prime US mortgage market and associated liquidity problems affect Latin America?'

On October 9, 2007 the market research firm InfoAmericas (Miami), which specializes in the Latin American region, published its monthly newsletter titled, "Tendencias." The newsletter presented a summary of the firm's findings about the impact of the US mortgage crisis on the Latin American region.

The first sentence of the summary reads: "The recent crisis in US sub-prime mortgage instruments will have only a limited impact on Latin American financial services firms and their customers." The reason is the local nature of banking in the region, and how assets are securitized.

The firm says, "Assets of banking and insurance related firms in Latin America are held mostly in local sovereign securities with some cross-border blue chip government, bank or corporate securities."

Another protection is the development of local capital markets in the region, "effectively reducing [individual country] exposure to external capital." The firm's newsletter concludes, "Combined with sound fundamentals--low inflation, deep reserves, and exchange rate flexibility - this has worked to deflect volatility stemming from the recent sub-prime credit crunch."

Two minor exceptions: One, the Brazilian Real declined against the dollar, mostly, though, "reflecting nerves over emerging markets in general."

Two, a few firms delayed international bond issues waiting to see how far liquidity problems would spread.

Initially, there were worries that the main impact of the US credit crunch would be on economic activity in the US, and therefore that remittances to the Latin American region--critical to economic stability--would be negatively impacted.

Some markets did see slower remittances, but no trend has developed so far.

An October 26, 2007 press release from Fitch Ratings filed from Monterrey previewed a Fitch "Special Report" on Mexico's mortgage market. Fitch said, "The Mexican housing market is poised for continued strong growth underpinned by a developing mortgage market." The report concludes, "Fitch believes the Mexican market currently has an adequate liquidity level to continue funding the mortgage industry in the short term, despite the expectation that sector funding from overseas will decrease."

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