BORHI means Mortgage Backed Bond.
In order to boost growth of the primary and secondary housing markets, by granting guarantees for construction, acquisition, and improvement of housing, SHF has implemented a strategy to create and develop an efficient and far-reaching mortgage market, through securitization of mortgages and issuance of BORHIs.
A BORHI is a bond backed by a mortgage that possesses specific characteristics that SHF has established, which offer additional advantages such as:
1. Expediting access to an ample source of funds that support the development of financing schemes that will help meet demand for mortgages in the years ahead.
2. By connecting the primary and secondary mortgage markets, SHF stimulates a substantial reduction in the interest rates borrowers pay, thereby helping more Mexican families gain access to decent housing that raises their standard of living and quality of life.
For an issue to be considered a BORHI, SHF checks that it has at least the following characteristics:
a) Structure of the issue:
• Mortgage Backed Debt Instruments (BORHIs) will be issued based on the placement in trusts of loans with mortgage or fiduciary guarantees, intended for acquisition of housing;
• The respective issue of instruments at the time of the issue, has at least two opinions on creditworthiness issued by any of the eligible securities rating institutions, which assign it a rating equivalent to the highest domestic investment grade;
• Before the bonds are issued, a custodian is designated for the documentation related to the mortgages backing them;
• The placement prospectus establishes a mechanism to designate a substitute manager;
• The trustee and/or the settlor, in the capacity of portfolio manager, must provide SHF, the market, and any authorities that request, the monthly information indicated in applicable regulations and send it through SEDI or the electronic means established, in the understanding that any calculation of information requested will be made based on the mortgage information the manager provides by means of the Collections Report.
• The Master Portfolio Manager must reconcile the information in the Collections Report and the Report on Distributions to holders of debt instruments monthly, and will issue a statement certifying that the review has been conducted. If the Master Portfolio Manager detects any inconsistency in the information, it must inform the Manager before the next closing date.
• The issue has a public calculator that allows interested parties to appraise BORHIs using the information that the trustee and/or settlor provide the market.
• BORHIs must have a combination of security mechanisms, which may include:
o Minimum level of cash flow or principal retained by the settlor, understanding this variable as the percentage of the portfolio that is placed in trust above the value of the Securitized Instrument at the time of the issue.
o Cash reserves contributed at the outset.
o A subordinate bond; and
o Financial guarantee or Timely payment guarantee;
o Other enhancers.
b) Mortgages to be securitized:
• Each mortgage must have a complete and properly compiled credit file;
• The mortgages must have valid life and casualty insurance, with valid, enforceable policies;
• Mortgage Insurance (Spanish acronym SCV) or timely payment guarantee (TPG) for payment in case of any eventuality that causes default on the part of mortgage obligors. This insurance must be provided by a duly authorized financial entity;
NOTE: Mortgages that have a TPG will be eligible for securitization under the name of BORHIs, as investors will know that: i) they have passed through a strict origination process; ii) they have been reviewed by a third party that will assume losses in case of default; and iii) they conform to a common standard in terms of file composition, reporting of information, and origination and management mechanisms.
• At the time of assignment, the following conditions relating to the amount of the mortgage in relation to home value (loan to value ratio or LTV):
o If the LTV of the mortgages is in a range of 81% to 90% (95% in loans granted in accordance with Article 43 bis of the INFONAVIT Act), there must be Mortgage Insurance (Spanish acronym SCV) or a Timely Payment Guarantee (TPG) in the required percentage, so that the difference of the present LTV minus the SCV/TPG ratio brings the LTV to 80%.
o If the LTV is below 80%, the requisite of SCV/TPG may be waived; however, the loans must have certification of their document quality.
• As of the date of assignment, no mortgage must have more than three past-due monthly payments of principal, interest, fees, premiums, or other amounts payable by the borrower
• Minimum Wage -UDI swap for loans denominated in UDIs;
• Others that may be required over time to strengthen the mortgages backing the structures.