Subprime Housing Goes South:

Constructing Securitized Mortgages

for the Poor in Mexico

Susanne Soederberg
Departments of Global Development Studies and Political Studies, Queen’s University, Kingston,
Ontario, Canada; soederberg@queensu.ca

Abstract: Mexico represents the largest market for residential mortgage-backed securi-
tization (RMBS) in Latin America. Despite its significance to questions of development,
there has been no critical analysis on the social implications and power dimensions of
RMBS with regard to low-income housing in Mexico. This essay fills this gap by
demystifying the technical and thus apolitical nature of RMBS as well as by explaining
how and why state-sponsored securitization schemes subsidize financial and construction
interests in the name of expanding home ownership for the poor. In so doing, the analysis
employs a historical materialist approach that, first, places RMBS within the contradictory
nature of capital accumulation processes in Mexico and relations of class-based power
therein, and second, views RMBS as an integral feature of housing policy that is inextricably
linked to the nerve centre of capital accumulation, namely: the credit system.

Keywords: credit, low-income housing, Mexico, private property, securitization

Introduction
Since the 2007–2008 subprime housing crisis and its global recessionary fallout,
many critical urban scholars have rightfully sought to analyze one of its key
features: residential mortgage-backed securitization (hereafter, RMBS or mortgage
securitization). Briefly, RMBS refers to a type of asset-backed security that
transforms illiquid assets in the form of home mortgages into tradable securities,
which are then sold to investors (Elul 2005). The majority of the scholarly investiga-
tions into mortgage securitization have been grounded in the geographies of the
United States and Europe (Aalbers 2012). As such, we know little about mortgage
securitization in the global South, and in particular, its emerging role in global
development finance (Sassen 2009; Soederberg 2014).
Given the significant social risks associated with RMBS as well as the rapid spread
of asset-backed securitization to other forms of development finance, such as
micro-finance (Young 2010) and disaster management schemes (Grove 2012), it
is vital that we expose this increasingly popular financial instrument to critical
scrutiny. To this end, I examine Mexico’s mortgage securitization market, which
albeit small in comparison to the United States, represents the largest market of
its kind in Latin America (IDB 2011).
Proponents of mortgage securitization in Mexico view it as a win–win strategy
that allows the seller of debt to rapidly recover working capital and then recycle it
by issuing new loans to small borrowers (IMF 2008; Sanchez 2010). As one observer

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482 Antipode

notes, “This is how institutions that are not normally interested in the little guy” are
making more credit available, generating liquidity through the purchasing of secu-
ritized mortgages (Emmond 2005:36). On this perspective, mortgage securitization
has been widely represented by financial pundits, policymakers, and development
practitioners as highly beneficial for developing countries such as Mexico where
extreme housing shortages continue to exist (UN-Habitat 2012).
In contrast to the above mainstream stance, the questions that concern me here are
why housing deficiencies have continued to affect the near majority of the population
in Mexico well after the first RMBS issuance in 2003? And, who benefits and why from
the introduction of mortgage securitization in Mexico? Drawing on a historical mate-
rialist approach, which I outline below, I explain how and why state-sponsored
securitization schemes subsidize financial and construction interests in the name of
expanding home ownership among the poor. I argue that mortgage securitization
for low-income housing is a neoliberal response that emerges historically from capitalist
strategies aimed at overcoming the tendency toward overaccumulation, on the one
hand, whilst catering to powerful capitalist interests, on the other.
The study is organized as follows. The first section explores some core assumptions of
RMBS before identifying one of its central contradictions in Mexico’s housing market.
The second section lays out the analytical lens by highlighting Harvey’s concept of
switching crises. This lens serves to frame a historical account of the emergence,
tensions, and capitalist nature of mortgage securitization in Mexico. The third section
examines the historical and continuing significance of various specific interventions by
the Mexican state regarding housing over several decades, spanning the rapid industri-
alization and urbanization era in the 1940s to its shift to neoliberal-led capitalist
restructuring in the 1980s and 1990s. The fourth section centres on the institutional
and legal construction of RMBS in 2003 and its social implications. The fifth section anal-
yses the changes and challenges in mortgage securitization in the wake of the 2008
financial crisis. The sixth section concludes by summarizing the arguments and situating
the discussion in the wider literature on low-income housing in the global South.

Conventional Wisdom on Mortgage Securitization and

its Limits
The securitization of residential mortgages refers to the creation of residential
mortgage-backed securities. As with all asset-backed securities, this involves the
construction of a pool or portfolio of loans used to support the issuance of one or
more types of securities in secondary mortgage markets (Kothari 2006). In the case
of mortgages, a government-sponsored enterprise such as the Federal Mortgage
Company (Sociedad Hipotecaria Federal or SHF) places these mortgages in a trust
(also known as a special-purpose vehicle) and then insures the pool against default.
This state-backed guarantee is known as a form of credit enhancement in that it
makes the securitization more attractive to potential investors, given that the state
is backing up the transaction 100% (SHF 2014). The sale of these securities to
institutional investors such as pension and equity funds generates cash flow back
to the originator of the pool, which can then use the funds to create additional
loans (Jobst 2006).

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Constructing Securitized Mortgages for the Poor 483

RMBS is largely portrayed in the mainstream economic literature as an innovative

instrument that has emerged from the naturally evolving, ahistorical, and harmonious
marketplace, and thus is assumed, not explained. The RMBS literature in Mexico,
most of which has been written prior to the introduction of RMBS in the country in
2003, also presumes that private consumption is far more efficient than public
consumption in ensuring decent housing for those in greatest need, despite
the fact that both the market and the state have consistently excluded
the poor—in both the formal and informal sectors—from access to formal housing
finance (Haddad 1999; Poindexter and Vargas-Cartaya 2003).
Before continuing, two caveats are in order. First, in the context of our discussion,
low income or poor refers to those families earning zero to three times the mini-
mum monthly wage (hereafter, MMW), ie families that have been in most need
of decent and affordable dwellings (UN-Habitat 2011). Second, the exclusion of
the poor from access to formal and affordable housing finance is not an exclusively
neoliberal phenomenon. What is different in the neoliberal era, however, is the turn
to market-led solutions (eg RMBS) backed heavily by state funding and regulatory
framings, to solve the tensions that emerge from the wider dynamics of capital
accumulation (Harvey 1999).
As I demonstrate below, the social reality in Mexico clashes with the conventional
wisdom about RMBS. Despite the claims of universal benefits of mortgage
securitization and its ability to make markets more efficient and allow lenders to
increase credit to more borrowers, Mexico continues to be characterized by an
extreme shortage of affordable housing for the poor. This is especially the case for
low-income families, and that shortage is growing (UN-Habitat 2011). Indeed,
Mexico’s housing sector remains riddled with the following paradox. On the one
hand, capitalist interests, particularly in the housing construction and finance
sectors, continue to flourish with heavy state support through favourable policies,
legal framing, and subsidizations that prioritize new homes over repairing existing
stock, as well as permitting private companies to build on speculation and finance
through mortgages guaranteed by the state (Monkkonen 2011a). As I demonstrate
below, the tension between the high cost of housing supply and the limited
purchasing capacity of the poor is a social construct that has been actively recreated
and normalized by the Mexican state.
On the other hand, and despite the state’s rhetorical commitment to housing
rights for all, a growing and substantial number of low-income Mexicans continue
to be excluded from accessing formal financing channels to obtain decent and af-
fordable housing. The least expensive homes in the urban Mexico market cost US
$13,000, and the ability afforded to lower income families to purchase homes on
credit barely covers half of those families that are with current need (UN-Habitat
2011:4). In 2011, for example, 503,000 new homes will be constructed but only
51% of the population will be eligible to apply for a mortgage (SHF 2011). On
some estimates, only 32% of Mexicans are mortgage eligible (UN-Habitat 2011).
This paradox compels us to ask not only what the sources of change are
regarding the emergence of RMBS in Mexico, but also to investigate the social
machinations involved in reproducing the conditions in which large margins of
exclusion occur in relation to formal access to affordable housing finance.

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A Historical Materialist Framing of Mortgage

Securitization in Mexico
To address the above concerns, I turn to a historical materialist framing that is heavily
influenced by David Harvey’s work on switching crises and circuits of capital. The
benefits of this approach are that it allows us to transcend the above mainstream repre-
sentations of mortgage securitization in Mexico in two interlocking ways. First, RMBS is
placed within the wider contradictions inherent to capital accumulation, particularly
the tendency toward overaccumulation in which “too much capital is produced in
aggregate relative to the opportunities to employ that capital” (Harvey 1989:62).
Second, this perspective allows us to grasp that mortgage securitization is viewed as
an integral feature of historically developing housing policy, which is firmly rooted in
the workings of the inherently contradictory nature of the credit system.
According to Harvey, there are three circuits of capital: primary, secondary and
tertiary. Briefly and broadly, the primary circuit refers to the means of production
and production of the means of consumption. Given the inherent contradictions that
exist within this primary circuit of capital, this route produces a tendency toward
overaccumulation (Harvey 1989:63ff). When confronted with limits to capital accu-
mulation brought about by overaccumulation, capitalists, with the assistance of the
legal and regulatory roles of states, switch to the secondary circuit of capital to escape
the barriers of capital accumulation in the primary circuit of capital. The secondary circuit
of capital flows into a built environment for consumption, which for our purposes
refers to the physical framework for consumption, such as houses (Harvey 1989).
A switch of flows from the primary to the secondary route of capital can be
accomplished only if the various displays of overaccumulation can be converted
into money capital that can move freely and unconstrained into these forms of
investment, such as housing mortgages (Gotham 2006). A necessary condition
for the shift of resources from one circuit into the other, therefore, cannot take place
without a money supply and credit system that creates fictitious capital in advance of
actual production and consumption (Harvey 1989). Fictitious capital refers to a flow
of money not backed by any commodity transaction (Harvey 1999). Fictitious capital
in the form of RMBS allows for the switch of overaccumulating capital into secondary
circuits (built environments) and can, therefore, veil the manifestation of crises, at
least in the short run (Harvey 1999). But, the creation of fictitious values ahead of
actual commodity production and realization is a risky business (Harvey 1999).
Seen from the above perspective, the credit system is central to switching crises in
the Mexican housing sector because the former becomes both the cutting edge of
accumulation and a key feature in dealing with the overaccumulation of capital
and excess labour, with all the associated dangers of such exposure (Harvey
1999). This, in turn, reinforces Marx’s insistence that the credit system is a product
of capital’s own endeavours to deal with the internal contradictions of capitalism. I
discuss the spatial and temporal dimensions of these tensions as well as how they
have been mediated, legitimated and governed more fully in my recent book
Debtfare States and the Poverty Industry: Money, Discipline, and the Surplus Population
(Soederberg 2014). Here, it is important to underline that the Mexican capitalist
state, and by extension, international financial institutions such as the World Bank,

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Constructing Securitized Mortgages for the Poor 485

play an integral role in smoothing, absorbing, and depoliticizing the above

paradoxes and their inherent struggles, albeit always in a contradictory and ex post
facto manner (Soederberg 2014).
State institutions and their management of tertiary capital play an important role in
the completion of the circulation of capital in general, as they act to absorb the
inevitable struggles and paradoxes in the accumulation processes. A key feature of
tertiary circuit of capital refers to a wide range of social expenditures that relate
primarily to the processes of the reproduction of labour power, including the
category designated as excess labour power or what Marx refers to as the surplus
population(Marx 1990 [1867]). According to Harvey, these social expenditures fall
into various categories, such as investments that are aimed at the qualitative
improvement of labour power from the standpoint of capital (eg education and
health policies) and investments directed at co-opting, integrating, and repressing
workers through ideological, military, or other means, such as housing policies
(Harvey 1989:65–66). These types of investments are vital to provide an adequate
social basis for further accumulation. A key assumption here is that capitalist society
is neither natural nor self-reproducing, but instead is a complex set of social construc-
tions that must be continuously reproduced and legitimated.
The type and amount of money that the state will dedicate to social expendi-
tures are strongly influenced by the nature of struggle and configuration of power
within the dynamics of accumulation. As Harvey notes, “The amount of invest-
ment in repression and in ideological control is directly related to the threat of
organized working-class resistance to the depredations of capital” (1989:66). As
will become clearer with our analysis, the built environment for consumption with
regard to housing in Mexico has been, and continues to be, heavily dependent on
tertiary capital supplied by the state, particularly through institutions such as the
Housing Provident Funds (hereafter: Housing Funds), which I discuss below.
Seen from the above angle, the Mexican capitalist state is understood as a nationally
and historically specific terrain of competing and conflicting interests, which is rooted
in, but not determined by, the constantly changing configuration of power in capita-
list society. The various state institutions (eg the Housing Funds) serve to mediate the
relations between the various circuits of capital (Harvey 1989:65). The concrete
expression of the Mexican capitalist state that will occupy most of our narrative is
one marked by the processes of neoliberalization, by which I mean a politically guided
intensification of market rule and commodification that is uneven, paradoxical, and
fraught with struggles (Peck and Theodore 2007).
In contrast to the above mainstream renditions, which assume the existence of
RMBS as natural, inevitable and universally beneficial, a historical materialist lens
offers a more rigorous perspective through which to identify the source of power
and class nature of mortgage securitization in the name of the poor. Relatedly, a
historical materialist approach allows us to understand more fully the role of RMBS
in the wider processes of capital accumulation, and, in particular, the collective nerve
centre (ie, the credit system) of the three circuits of capital. It is important to underline
that the circuits unfold in an unpredictable and often contingent manner along a crisis-
restructuring continuum as opposed to some sort of linear progression, which is often
preferred by neoclassical economists. This continuum may be understood as an

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interconnected and ongoing series of reconstructions and representations that consti-

tute the contradictory and class-led evolution of neoliberal practice, which pivots on
the inability of the credit system to expunge the underlying contradictions of capital
accumulation (Harvey 1999).

A Historical Materialist Overview of Mexico’s Housing

Sector
Housing Policy During the Mexican Miracle
As we will see below, the historical insertion of the Mexican economy into the capitalist
world market, and its relations with the United States in particular, has continually
relied heavily on an abundance of cheap and well disciplined labour as a core feature
in luring and maintaining foreign capital flows into the country (Soederberg 2004).
Reproducing this great mass of workers continually requires social expenditures
(tertiary capital) to forge the social basis for further accumulation by co-opting and
integrating some whilst repress and exclude other segments of labour (Morton 2011).
Housing policies in Mexico have always catered primarily to a small segment of the
labour force, namely workers in the formal sector, and unionized workers more
specifically. To some extent, then, the above-mentioned paradox underpinning the
RMBS has always existed in Mexico, albeit in different manifestations.
An important facet of the rapid industrialization and urbanization that marked the
Mexican Miracle was the construction industry. The latter sector, which represented
one of the largest employers in Mexico from 1940 to 1970, was facilitated by active
state expenditure on necessary physical structures such as housing, ie consumption
fund (Ball and Connolly 1987). This employment of tertiary capital by the state also
facilitated a financial dependence between public funds and the construction
industry, which has continued to the time of writing:
Public agencies forward substantial advance payments, which virtually cover the entire
production costs, before work commences. Contractors are thus able to operate with a
minimum of capital on their own, while dispensing with the need for credit from financial
institutions except for short-term bridging loans (Ball and Connolly 1987:156).

In 1963, the Mexican state employed tertiary capital in the form of a second-tier
development bank, known as the Fund for Housing Operation and Finance (FOVI),
as a way to facilitate the rapid urbanization driven by industrialization. FOVI, which
would later be replaced by the Mexican Federal Mortgage Company in 2001, was
designed to provide low-interest mortgage financing to low- to middle-income
households, ie between three and six times the monthly minimum wage (MMW)1
(Barry et al 1994). FOVI, with the financial assistance of the Mexican Central Bank
and the World Bank, attempted to entice banks to lend to this income bracket by
providing funds to the commercial banks. FOVI, however, largely failed to encourage
commercial banks to lend to the poor.
In response to the political upheavals associated with the overaccumulation crisis
in the late 1960s, the Mexican state established a consumption fund in the form of
two Housing Provident Funds for workers in 1972: the Institute of the National
Housing Fund for Workers (INFONAVIT) and the Housing Fund of the Social

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Constructing Securitized Mortgages for the Poor 487

Security and Services Institute for State Workers (FOVISSSTE). According to Mexican
labour law, private sector employers must make deposits to their workers’ account
at INFONAVIT, equal to 5% of the workers’ wages or salaries (IDB 2011).
INFONAVIT uses these payroll deductions as subsidies for housing loans made
below market interest rates for its members. FOVISSSTE operates in a similar man-
ner, but targets public sector workers (Chiquier and Lea 2009).
The immediate effect of the creation of the two Housing Funds, which only
covered formal workers in the private and public sectors, was the exclusion of the
relatively larger number of informal sector workers from affordable housing
assistance (World Bank 2002). The Housing Funds continue to play a major role
in residential housing markets, ranging from 70% market share at the end of
2005 to more than 80% at the end of 2009—most of which has involved
moderate-income households (IDB 2011). Given their central role in the housing
industry, Housing Funds also represented a switch to the tertiary circuit of capital,
facilitating the consumption fund for the built environment through active
management of housing development and the issuing of mortgages and continued
financing of the powerful construction industry (IDB 2011).

Overaccumulation and the Rise of Neoliberal-led Capitalist

Restructuring
With the advent of the 1982 debt crisis, the Mexican state began to embrace neolib-
eral policies with an emphasis on market-led growth and preference for private as
opposed to public consumption, as prescribed by the so-called Washington
Consensus (Soederberg 2004). These policies were geared toward the restructuring
of Mexican accumulation with a shift from its import-substitution industrialization
(ISI) model to an export-orientation industrialization (EOI) scheme (Morton
2011). This restructuring of Mexican capitalist society to overcome barriers in
primary circuits of capital (eg falling rates of profit, surplus labour, and so forth)
through geographical expansion (spatial fix) along the lines of EOI was consolidated
and deepened with the signing of NAFTA in 1994.
Moving toward a market-oriented approach, the Mexican state tried to walk a
fine line between appealing to international investors whilst practising brokerage
politics at home by expanding domestic debt (Marois 2012). Tertiary capital
(fictitious capital in the form of sovereign debt) allowed the state to continue to
finance popular and politically necessary, yet debt-financed, programmes, such
as INFONAVIT. Prior to 2000, both Housing Funds recorded default rates on mort-
gage loans in the excessive range of 20–40%. INFONAVIT paid negative real rates of
return on savings during much of the 1980s and 1990s (Chiquier and Lea 2009).
This switching crisis may have temporarily appeased some groups, such as
powerful unions and the construction industry, but it came at the cost of increased
inflation and high interest rates to attract investment.
To placate the social dislocations brought about by the debt crisis and subse-
quent neoliberal restructuring, the state nationalized the banking system in 1982
(Marois 2012). This allowed the state to draw on, in part, commercial banks as a

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source of their tertiary capital switching strategy with regard to low-income

housing policy. Commercial banks, for instance, were required to preserve a fixed
percentage, ranging from 3% to 6%, of their outstanding mortgage portfolio in
so-called “social interest loans”. These loans, which were partly funded by FOVI,
served as a second-tier bank, channelling government funding to commercial banks
for low-income housing finance (Pickering 2000). The Mexican state continued with
its brokerage politics regarding housing policy. With the social interest fund in place,
the government modified, in 1983, Article 4 of the Mexican Constitution so that it read
that all families had the right to a respectful and dignified home. In 1984, the
country’s first Federal Housing Law was established to secure this constitutional
mandate. Given that these housing policies were highly influenced by the pressures
that were brought about by large unions, however, the reforms excluded the informal
sector (UN-Habitat 2011:14).
The wider capitalist restructuring strategies along the lines of EOI would further
complicate the lack of adequate housing policies for lower-income, informal
workers, however. At the centre of the EOI model were the maquiladoras, which
were largely seen by many neoliberal ideologues as the panacea to Mexico’s so-
called problems of “underdevelopment” (Bhagwati 1992, cited in Puyana
2010:6). The social reality for the majority of Mexican workers remains starkly
different from this narrative, however. Maquiladoras, as with most forms of
employment in Mexico, are driven by the lowest acceptable international labour
standards and have therefore not been able to provide socially sustainable levels
of wages (Kopinak 1994). The maquilas also offer fewer jobs than the number lost
from the privatization of state-owned enterprises and agriculture (Cypher and Wise
2010). Deteriorating general employment conditions has not been isolated to the
maquiladoras, however. Based on official statistics, Puyana notes that informal
economy increased prior to and during NAFTA from 61% of the economically active
population in 1991 to 64% in 2009 (Puyana 2010:15).
The growing numbers of informal workers and heightening pressures for
adequate housing for this segment coupled with the mounting pressure by the
Canadian and US governments to further liberalize its financial sector in the pre-
NAFTA negotiations led the Mexican state to create a new financial intermediary
known as SOFOLES (Sociedades Financieras de Objeto Limitado). The latter, which
were designed to target low-income workers in the informal sector, are limited
purpose financial organizations or “niche lenders” that differ from commercial
banks because they can acquire assets through deposits and can grant loans only
for the housing sector. SOFOLES are limited purpose in that they are required to
lend to only one particular sector such as agri-industry, manufacturing, mortgages,
car loans, and so forth. The fastest growing and largest SOFOLES are those that
specialize in mortgages (Emmond 2005).
In creating SOFOLES, the Mexican government was also hoping to spur greater
competition and specialization in the financial sector to assist in funding the built
environment for the swelling numbers of informal workers. SOFOLES, for instance,
were to target workers that fell out of the purview of the Housing Funds, ie informal
workers. The privately owned SOFOLES, which were heavily funded at a reduced
rate of interest by the World Bank’s International Financial Corporation, the Inter-

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Constructing Securitized Mortgages for the Poor 489

American Development Bank (IDB), and FOVI, were to fill the lending gap left by
the social interest loans by providing a new means for originating and servicing
FOVI- financed loans. During the early 1990s, Mexico’s two Housing Funds also
underwent major reforms (IDB 2011). One important change was the shift away
from constructing homes to financing mortgages, which affected FOVISSSTE in
1991 and INFONAVIT in 1993 (UN-Habitat 2011). However, the relatively low-cost
housing involved in this move was not geared to lower-income Mexicans but
instead to middle and upper-middle class households, ie those earning above the
zero to three times the MMW (Monkkonen 2011b).
In the wake of the devastating Peso Crisis of 1994/1995, the Mexican state sought to
jump-start private housing financing by moving funds (tertiary capital) from FOVI to
finance the SOFOLES. In the late 1990s, for instance, 14 SOFOLES were licensed to lend
with FOVI funds (Pickering, 2000). The target borrowers of these SOFOLES were
workers in the informal sector, who did not have access to bank and government
funding, eg the Housing Funds. Given that SOFOLES were the first lending institution
permitted to issue securitized mortgages, it is useful to understand how this funding
worked. FOVI distributes its mortgage funds to the SOFOLES through auctions by housing
developers. If the developer wins the bid, the developer is then obliged to cover the
promised amount for each mortgage that is issued at the time the final buyer receives
their mortgage from SOFOLES and takes possession of the home (Pickering 2000:8).
This dependent relationship between the state and housing sector echoes the earlier
description by Ball and Connolly, but with at least two key differences. First, the state is
no longer directly involved in the construction of housing. Second, the relationship
involves SOFOLES and construction companies, with the Mexican state (FOVI) assu-
ming an indirect though essential role as guarantor fuelled by fictitious capital. FOVI,
for instance, finances construction loans for up to 65% of the finished home sale value.
SOFOLES also originate and service these loans (Pickering 2000:8–9). The rise in
mortgage lending and the reform of lending, discussed above, resulted in a transfor-
mation of the way in which housing is constructed and acquired. As one urban scholar
suggests: “a majority of houses are now built by private companies on speculation and
purchased with mortgages, rather than through the incremental process that
previously governed urban development” (Monkkonen, 2011b:406).

Constructing Mortgage Securitization

Aside from the passage of several key reforms, including the passage of the
Amendments to the General Law on Securities and Credit in 2000 and the Law
on Guaranteed Credit in 2002, several state-led changes in the housing sector
occurred during the early 2000s that helped facilitate the first mortgage securitiza-
tion in 2003. In 2000, GMAC Financiera (hereafter GMAC) was established in
Mexico. GMAC, which would be involved in the first RMBS in the country, is a
wholly owned subsidiary of US-based Ally Financial, which is one of the world’s
largest financial services companies. Since its arrival in Mexico, GMAC has become
an important source of funding for the SOFOLES. In 2001, INFONAVIT underwent
comprehensive changes, which were aimed at, among other things, preparing it

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to move toward the mortgage securitization issuance programme (IMF 2008).

INFONAVIT was also under pressure domestically and globally to increase its
lending to lower-income Mexicans, thereby addressing a past trend of granting
loans to higher-income affiliates (World Bank 2002).
With recommendations and funding from major international development
organizations such as the World Bank, Inter-American Development Bank, China Devel-
opment Bank, and Financial Stability Board, and the embrace of further neoliberal
reforms with regard to its housing sector, the Mexican government established the
Federal Mortgage Company in 2001. The SHF, which replaced FOVI, was mandated
to promote RMBS and increase private funding for the housing sector. Federal Mort-
gage Company was created with the main objective of fostering a secondary mortgage
market through its role as guarantor and liquidity provider. The main functions of the
Mexican Federal Mortgage Company are to provide long-term financing to SOFOLES
and to act as collateral in securitization issuances of SOFOLES. The Federal Mortgage
Company was initially established with an expiration date in 2009 but, as we will
see below, this was subsequently repealed and extended to 2013 (IMF 2008:11), as
the Mexican Federal Mortgage Company was required to continue to deal with the
paradoxes in capital accumulation in Mexico, as manifested in the housing market.
The credit enhancement by the SHF for securitizations of both the SOFOLES and
Housing Funds is fairly high, as investors view this as a risky investment. Another
way SOFOLES reduce risk for investors is through the creation of investment units
(unidades de inversiones or UDIs), which are not denominated in pesos but US
dollars, thereby offering shelter from inflation fluctuations (IMF 2008). In doing so,
the Federal Mortgage Company puts the “full faith and credit” of the Mexican state
behind the mortgages (SHF 2008). As in the case of FOVI, the Federal Mortgage
Company does not lend directly to those in need of a home, but instead guarantees
the timely payment of mortgages. Thus, if a mortgage payment is 6 months behind
in payment, the “SHF pays to the lender between 25 and 75 percent of the outstan-
ding balance of the mortgage loan, plus interest, as well as insurance fees and any
unpaid servicer” (Jordan 2008:1188). As I noted earlier, the Federal Mortgage
Company’s credit enhancement is believed to generate extra money for lending
institutions, so as to encourage them to issue more mortgages, preferably to
lower-income workers in the informal sector.
With the legal, regulatory, and ideological moorings in place, the first mortgage
securitization took place in 2003 and involved GMAC and two large SOFOLES—
Hipotecaria Nacional and Hipotecaria Su Casita (Carballo-Huerta and Gonzalez-Ibarra
2009). The World Bank Group’s International Finance Corporation (IFC) was said to
have played a major role in securing the deal by giving it credibility as well as
“bringing discipline to the table” in order to win over the scepticism of investors,
particularly in the recessionary fallout of the dot-com crisis in the United States
(IMF 2008). With the introduction of RMBS, the Mexican state continued to intro-
duce reforms to encourage more private sector participation in housing finance
by, for example, allowing members of the Housing Funds to simultaneously
originate the purchase of a house with a credit from a Housing Fund and from a
private lender (SOFOLES). The state also loosened its regulatory nets by allowing
Housing Fund members to use their savings as a down payment for a loan

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Constructing Securitized Mortgages for the Poor 491

originated by another lender (Chiquier and Lea 2009). In April 2005, the second
largest SOFOL in Mexico, Hipotecaria Su Casita, and INFONAVIT, closed a $100 million
variable funding note programme (Hipotecaria Su Casita Construction Loan Trust)
(Jobst 2006). To help generate funds, the Mexican state also initiated a securitization
program for both the Housing Funds (Chiquier and Lea 2009).
Notwithstanding the mainstream rhetoric around mortgage securitization and its
alleged win–win benefits for the poor, the paradox underpinning housing in Mexico
would only be temporarily resolved through the credit system. Despite these financial
innovations and low interest rates, the lower-income population, in both the formal
and informal sectors, remained lightly served by SOFOLES and the two Housing Funds
(Chiquier and Lea 2009; IDB 2011). The housing market, however, experienced a
boom from 2000 to 2008, which was led, in part, by a significant expansion of
INFONAVIT’s mortgage issuance, and in part, by commercial banks and SOFOLES
increasing their mortgage lending as well. In fact, the number of mortgages issued
by commercial banks, which were aggressively re-entering the mortgage lending
market, and SOFOLES during 2007 almost doubled the previous 1992 peak (IDB
2011:16). Total issues of RMBS reached over US$6 billion in 2006—tripling in volume
since 2004 and making Mexico the largest RMBS market in Latin America. Enticed by
the profitability and ability of SOFOLES to target workers in the informal economy, as
well as their growth rates, which led these non-bank entities to manage billions of
dollars in home loans, a major commercial bank, BBVA, acquired Mexico’s largest
SOFOL, Hipotecaria Nacional, in 2004 (BBVA 2011). Unlike commercial banks,
SOFOLES offer more flexibility in terms of minimum amounts required for applying
for a bank mortgage, are able to provide loans in dollars, and offer more flexibility in
terms of repayment than banks (Knowledge@Wharton 2006).
In 2005, the construction sector was the most profitable in Mexico, with
construction firms enjoying a 44% increase over previous annual returns (Jordan
2008). Underpinning this growth in the housing sector is the fact that there has been
a substantial reliance on new housing as the most appropriate way to satisfy demand
in Mexico, as opposed to repairing the large number of existing homes (IDB 2011).
As such, in 2005, housing stock had more than tripled relative to the 1970s. To
put this into perspective, in 2007, the housing stock replacement cost is estimated
to have been 86% of GDP (UN-Habitat 2011). Interestingly, 70% of existing housing
stock was estimated to be affordable housing, or in the “economic” category, ie
coinciding with five to ten times the minimum wage, whereas, as we saw earlier,
the greatest demand is needed in basic homes (corresponding to zero to three times
the MMW) and social homes (corresponding to three to five times the MMW) (IDB
2011:9; UN-Habitat 2011). Whilst there are around 2600 construction companies
operating in Mexico, the sector is dominated by six large companies: Geo, Homex,
Urbi, Ara, Sare, and Consorcio Hogar (IDB 2011). Geo and Homex, Mexico’s largest
construction companies by market value, both specialize in affordable housing. Yet,
as we will see below, the definition of affordable housing does not coincide with the
purchasing capacity of lower-income families (CIDOC 2008).
In 2006, RMBS became the largest structured asset class, representing over 25%
of total local structured issues. In this same year, housing construction represented
almost 3% of the country’s GDP, which is nearly on par with the auto industry,

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492 Antipode

Mexico’s manufacturing leader. Due to regulatory changes introduced in the insur-

ance sector in 2006, private sector financial guarantee providers (such as the IFC)
have entered the market, competing with Federal Mortgage Company in the provi-
sion of financial guarantees for RMBS (IMF 2008). One year after these regulations
were put in place, there were over US$6.4 billion in RMBS issues outstanding in the
Mexican bond market by seven different SOFOLES, INFONAVIT, and two commer-
cial banks (IDB 2011). Alongside the spread of RMBS in both SOFOLES and the
Housing Funds, the construction industry continued to grow, registering 6.8% of
GDP in 2008 down from 0.2% in 2007 (CIDOC 2008).
Despite the construction and financing boom in the housing market, low-income
workers remained locked out of affordable homes. To address this tension, the
Mexican state created the New Housing Law in 2006 (UN-Habitat 2011). Although
the law did not alter the direction of market-led forms of housing rights in Mexico,
it did contain a revealing insight into the highly unequal nature of housing in light
of the growing shortage of decent dwellings for the poor. The 2006 Law, for
instance, stated that housing is not only a basic human right but it is also a crucial
factor in creating social order. As such, it reflected an attempt by the state to create
a social basis for further accumulation as well as to appease the growing mass of
discontented workers. Notwithstanding the neoliberal rhetoric urging people to
become market citizens and embrace home ownership, few Mexican households
can afford a mortgage (see my discussion of the ‘Ownership Society’ in Soederberg,
2010). Drawing on the same government source, we find that the financing schemes
tend to concentrate on the acquisition of new housing, which represents a costly and
inaccessible solution for the lower income population (CIDOC 2008). The result is
that “over 50 percent of the population still lacks the resources to gain access to a
dwelling of the sort currently offered by the formal market” (CIDOC 2008:37). Data
collected in 2006 also reveal that SOFOLES were largely catering to workers, whose
wages fell within the six to nine times MMW and the over nine times MMW catego-
ries, whilst the Housing Funds served the three to nine times MMW bracket, leaving
the zero to three times MMW bracket underserved (CIDOC 2008:41).
The 2007–2008 subprime housing crisis in the US hit Mexico particularly hard, espe-
cially lower-income Mexicans. More specifically, the crisis revealed that RMBS served to
mitigate social risk for the construction and financial sectors. It also facilitated the
construction of new global spaces of subprime mortgages (Aalbers 2012). The World
Bank Group’s IFC, for example, assisted the establishment and growth of RMBS in
Mexico by offering the same “risk- management” techniques, funding instruments,
and ratings strategies that contributed to the US subprime debacle. In 2004, IFC also
shifted $718 million to support the issuance of more than $4 billion in RMBS, the
majority of which included backed loans to low- and middle-income households
seeking the acquisition of new housing, and excluding those in dire need of adequate
housing, namely, the zero to three times MMW bracket (see Table 1) (IFC 2005).

Marketization of Housing Rights for the Poor

With the advent of the 2008 global recession, real minimum wages, which had
already been decreasing, fell below the 1994 level (Puyana 2010:14). Although

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Constructing Securitized Mortgages for the Poor 493

Table 1: Share in new housing mortgage loans*

Lending institution 2008 (%) 2009 (%)

INFONAVIT 56.90 59.30

FOVISSSTE 11.10 22.70
SOFOLES 10.30 2.7
Commercial banks 21.70 15.3

Source: BBVA Bancomer, October 2009 in Housing Finance in Mexico: Current State
and Future Sustainability, Inter-American Development Bank (IDB), 2011: 16
*
Figures corrected for co-financed loans, i.e., granted by more than
one institution, for instance by INFONAVIT and a commercial bank

the Mexican housing sector overall did not experience the same freefall as its US
counterpart, many SOFOLES began to encounter financial problems, as workers
were unable to meet mortgage payments. By 2008, some mortgage SOFOLES were
experiencing high delinquency (Knowledge@Wharton 2011), and their overall
market share dropped considerably from 2008 to 2009 (see Table 1).
At the same time, government officials and industry insiders were lamenting the
fact that the lower-income population was still underserved, in both the formal and
informal sector (Chiquier and Lea 2009). According to the Federal Mortgage
Company (SHF), “The financing schemes focus on the acquisition of new housing,
which represents a costly and hardly accessible solution for the population with
lower incomes, or salaries equivalent to four minimum wages (or MMW)” (CIDOC
2008:37; SHF 2011). Despite these tensions, the proffered solution remained
framed in the realm of consumption (or, the built environment for consumption
discussed above), as opposed to understanding the roots of impoverishment in
past policy decisions and the nature of capital accumulation. Moreover, the fail
forward strategy was to remain faithful to RMBS, locking in the marketization of
housing rights under neoliberal-led development. With the proper market-friendly
regulatory reforms (eg transparency, accountability, and so forth), combined with
the privatization of the Housing Funds, capitalist interests would be able to take ad-
vantage of what has become the new growth area in the post-2008 environment:
affordable housing (BBVA 2011; BMI 2011). According to industry observers, low-cost
housing construction represents a thriving market that is expected to outperform the
overall sector (BMI 2011).
In keeping with the conventional wisdom of mortgage securitization outlined
earlier in the essay, the solution to this problem was not to examine the effective-
ness of mortgage securitization as a state-led mechanism to raise capital, reduce
risk, and expand capital and interest-generating activities for investors. Instead,
efforts were undertaken to expand, accelerate, and make more efficient RMBS in
Mexico in order to reach the poorest segment of the population. If we look more
closely at some of these policies, it becomes clear that the construction and financial
sectors benefit greatly from state-led reforms to marketize housing rights at the
expense of the lower-income population.
The Mexican state for its part has been actively seeking to depoliticize and resuscitate
the housing sector in the aftermath of the US subprime crisis by reinforcing the
2006 Housing Law and its emphasis on maintaining social order through such

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494 Antipode

rhetorical devices as the Housing Sector Program 2007–2012: Toward a Sustainable

Housing Development, issued by Mexico’s National Housing Commission (UN-Habitat
2011). The main thrust of this policy was to increase the quality and sustainability of
accessible housing among a large number of families through the realization of its first
objective: “Increase the amount of housing financing available to citizens, particularly
low-income families” (UN-Habitat 2011). In 2009, coinciding with the slowdown in
the housing industry, the Calderón administration signed the National Housing Pact
for Better Living.
The Pact establishes an investment of 150 million dollars to construct or improve 800,000
homes. This, also, has the potential to create and conserve jobs within 37 lines of work. The
Pact also requires that the [Federal Mortgage Company’s] funds serve as intermediaries
among financing entities such as SOFOLES so that these entities may approve applications
for housing credits that are for less than 25,000 dollars (UN-Habitat 2011:20).

The Mexican government has sought to meet the above objectives in its post-
crisis housing policies in several ways. First, as noted above, in 2008, for instance,
Congress repealed the sunset clause that would have terminated the Federal
Mortgage Company from 2009 to 2013. The year 2009 was originally earmarked
for the expiration of the Federal Mortgage Company because it was originally
thought that the markets would become efficient and independent enough to issue
RMBS without direct state subsidization and guarantees to SOFOLES by this time.
To assist the Mexican government in creating a more efficient and independent
RMBS market, the World Bank provided a substantial loan of $1.01 billion to the
Mexican Federal Mortgage Company to help refinance its short-term debt, which
will, in turn, allow this statal institution to support mortgage growth through the
SOFOLES. The World Bank, however, made clear that the Federal Mortgage
Company and SOFOLES should expand and its housing financing from its
middle-income base to severe low-income households (those that make less than
six times the MMW) (World Bank 2008). According to the Financial Stability Board
(FSB 2010:29), “This decision … proved crucial for maintaining liquidity to
SOFOLES, which has relied on domestic wholesale financing [from the Federal
Mortgage Company] and experienced several liquidity pressures during the crisis”.
To regain investor confidence, the Mexican government issued new regulations re-
quiring SOFOLES to meet similar accounting and transparency standards as banks,
raise more capital, and comply with new loan-loss provisioning rules (IDB 2011).
These reforms would, in turn, assist the SOFOLES in diversifying their lending as
well as help them partner with other lending institutions such as commercial banks.
The Federal Mortgage Company has been working closely with SOFOLES to create
new lending products geared toward the lower-income and informal sectors
(Knowledge@Wharton 2011).
Thus far, the technical and financial support from the Federal Mortgage
Company seems to be taking effect, as several SOFOLES have been creating new
lending products for lower-income families. Some SOFOLES, for example, have
created innovative products for street vendors and taxi drivers, who work in the huge
informal economy and do not possess either documented salaries or adequate credit
histories (Knowledge@Wharton 2011). Various SOFOLES are examining spending

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Constructing Securitized Mortgages for the Poor 495

habits to establish applicant income and offering trial payment periods to prove
borrowers can afford payments on entry-level homes that range from $17,000 to
$37,000, ie within the scope of basic and social homes (UN-Habitat 2011). It is worth
repeating that these homes cost more than what many of the lower-income house-
holds can afford, eg $13,000. SOFOLES have continued to target the estimated 11
million Mexicans working largely as undocumented, migrant labour in the US with
“cross-border” mortgages to pay off homes in Mexico, giving them more control over
the earnings they send relatives and cutting the time they need to work in the US to
build a future back home (Knowledge@Wharton 2011). It should be emphasized that
the state via the Federal Mortgage Company backs all these programmes. These
reforms, coupled with the persistent economic downturn in the rest of the world,
have made Mexico’s thriving affordable housing market an attractive investment for
a number of private equity funds eager to capitalize on the long-term growth poten-
tial and stable returns associated with the inexpensive housing sector (BMI 2011).
In sum, mortgage securitization and the expansionary lending strategies pursued
by SOFOLES to target low-income, informal sector workers ultimately benefitted
the financial housing market and construction companies. Put another way, the
class-led advancement of neoliberalization in the housing market that has sought
to mediate and socially reproduce relations of power has resulted in several charac-
teristics that not only stand out after several years of mortgage securitization but
also will act as the starting point for renewed paradoxes to be resolved, once again,
by the credit system (secondary circuit) with the legal and rhetorical framing as well
as subsidization (tertiary capital) of the Mexican state.
First, according to the Federal Mortgage Company, the attempts to expand the
RMBS market reveal comparatively higher levels of securitization with regard to
the Housing Funds than private issuances through Hipotecaria Total (or HiTO),
which is funded by, among other actors, the Federal Mortgage Company, Soros
Foundation, and Netherlands Development Finance Company (FMO) (CIDOC
2008; The Economist 2007). The largest issuer of RMBS continues to be INFONAVIT,
with 35% of the market (IDB 2011). This implies that contrary to the rhetoric of
market-led efficiency, the state is not only playing a key role in the privatization of
housing finance, but also that the highest concentration of money raised for alleged
redistribution to the poor will remain within the formal sector as opposed to the
informal sector workers, who require decent and affordable housing. As of 2009,
for instance, the Housing Funds held 82% of the market for new mortgages,
whereas SOFOLES held 2.7% (down from 7.6% in 2008), and commercial banks
weighed in at 15.3% (down from 6.4% in 2008) (IDB 2011:16).
Second, the tight and dependent relationship between the Mexican state,
construction companies, and private finance market actors such as SOFOLES has
not only continued to consolidate, but also has yielded a concentration of market
power. In 2008, four SOFOLES dominated 68% of the market share in construction
bridge loans (IDB 2011:24). Moreover, in 2009, 60% of new house mortgages
issued by INFONAVIT were built by 25 construction companies (IDB 2011:14–15).
In 2010, 88% of mortgage financing by INFONAVIT went to Homex constructed units
(BMI 2011). The largest construction companies in Mexico continue to rely heavily on
the state (the Mexican Federal Mortgage Company and Housing Funds) to provide

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496 Antipode

mortgage financing to low-income groups in the private and public (formal) sectors
(BMI 2011). The close and dependent relationships between the Mexican state and
major construction companies were also made evident in 2011 when delays in the
“2 × 1” subsidy program, whereby the Mexican government offers one peso in subsi-
dies for every two pesos that local governments pledge to help low-income families
become homeowners, had an immediate and detrimental impact on six major
construction companies, including Homex (Bloomberg 2011).
Third, despite the renewed focus on providing affordable housing to the poor,
the customer base of the SOFOLES did not include the low-income segment of
the population, but instead, and mirroring the INFONAVIT target customer, salaried
individuals and individuals of medium to medium-low income (UN-Habitat 2011).
It is estimated that at least 40% of all homes have been constructed directly by the
homeowners without either public or private help (UN-Habitat 2011:14). Interest-
ingly, this number remains similar not only with regard to the period prior to the
introduction of RMBS in 2003, but also reflects the importance of self-constructed
homes in the built environment prior to neoliberalization in the 1980s (Ball and
Connolly 1987).

Conclusion
Drawing on a historical materialist approach informed largely by David Harvey’s
circuits of capital and switching crises, I have demonstrated that the primary bene-
ficiaries of RMBS have not been the poor, whom mortgage securitization is
allegedly designed to serve, but instead large construction companies in Mexico
and the housing finance market. The latter is composed of the Housing Funds,
SOFOLES, and the increasing involvement of commercial banks and foreign institu-
tional investors (eg equity funds, pension funds) that have been entering the fold,
particularly since the US-led financial crisis of 2007–2008. My analysis reveals that
mortgage securitization in Mexico is neither a natural evolutionary feature of the
market nor has it been marked by a win–win scenario, particularly in terms of
providing greater access for the poor to formal housing finance. Indeed, the
primary beneficiaries of RMBS in Mexico continue to be middle-income workers in
the formal sector earning more than six times the MMW, the construction industry,
and the housing financial markets. The extent to which the ongoing processes of
neoliberalization, most notably attempts to privatize the Housing Funds (IDB 2011),
will help financial housing markets and the construction sector reach lower-income
families and at what social cost is, as always, determined by the past as well as
the future contingencies and struggles that mark the contradictory processes of
capital accumulation.
As I argue in my book, Debtfare States and the Poverty Industry, RMBS represents
an important segment of the poverty industry in Mexico that fuels the expansion
of credit-led accumulation on the backs of the poor (Soederberg 2014). RMBS, like
other features of the poverty industry, seeks to resolve the tensions of
overaccumulation in the realm of exchange (eg credit system) where exploitation
is not only less direct and politicized, but also where poverty is reduced to, among
other things, questions of financial exclusion as opposed to debates about

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Constructing Securitized Mortgages for the Poor 497

guaranteeing living wages and the universalization of social benefits to informal

workers (Soederberg 2014).
That said, in politicizing, contextualizing, and deconstructing RMBS in Mexico,
my argument has sought to contribute to the debates about low-income housing
in two overlapping ways. First, I addressed Saskia Sassen’s provocative, yet largely
unanswered, question regarding why, and to what extent, countries in the global
South are following the “troublesome development path” in which securitized
mortgages act as another mechanism of extracting value from low-income individ-
uals (Sassen 2009). Second, and more generally, I attempted to contribute to the
emerging literature that examines the intersection between the marketization of
housing rights in developing countries and its links to global financial flows, partic-
ularly as it relates to slum upgrading strategies (Desai and Loftus 2013; Gruffydd
Jones 2012) and the continued importance of David Harvey’s work on the
switching crises and capital circuits to the housing question (Charnock et al 2014;
Harvey 1989, 1999). As such, although my study is confined to the Mexican
context, I believe that the tensions and trajectories identified and explained here
complement current and past literature on the radical geography of housing for
the poor in the global South (Davis 2006; Gilbert and Varley 1991; Kumar 1996).

Endnotes
1
As of 1 January 2014, the minimum wage in Mexico (based on a national average) is 65.53
pesos, which translates into US$5.06 per day. http://www.mexicogulfreporter.com/2013/
12/mexican-minimum-wage-in-2014-will-be-5.html

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