Announcement of World Bank to Support Financing of Low-Income Housing in Mexico on June 6, 1988

FOR IMMEDIATE RELEASE ~NorldBank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.• Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 88/80 Contact: Ciro Gamarra (202) 676-1217 WORLD BANK TO SUPPORT FINANCING OF LOW-INCOME HOUSING IN MEXICO WASHINGTON, June 6, 1988 -- Mexico's efforts to increase the supply of affordable housing for low-income people will be assisted by a $300 million World Bank loan. The loan supports a housing program that aims to construct about 300,000 houses between 1988 and 1993. The loan will also support housing finance reforms that will allow commercial banks to achieve full cost recovery on mandatory housing loans. This change is expected to facilitate the resumption of voluntary lending for housing by the commercial banks and the mobilization of savings for housing finance. Central Bank regulations in Mexico require the commercial banking system to lend 6% of its total resources for low and middle-income housing. In order to address the severe credit subsidy problems resulting from high levels of inflation and low fixed interest mortgage rates under the mandatory lending system, a new variable rate mortgage instrument was introduced in 1984. As inflation continued to rise, the government made further significant adjustments to the new system in 1986 and 1987 to reduce subsidies, and in March 1988, Central Bank regulations allowing full cost recovery were issued. The achievement of full cost recovery is an important step toward the resumption of voluntary commercial bank lending and the mobilization of savings for housing. The loan is expected to increase the supply of affordable housing to low- income households,' especially by supporting the development of a lower-priced housing. Mexico's current housing deficit is estimated at about 5 million units and it continues to grow. The housing problem is compounded by the population's low capacity to generate savings for housing financing and the scarcity of long-term credit. To facilitate market acceptance of the new instrument, interest rates were initially set well below market rates, and full cost recovery could not be achieved. NOTE: Money figures are expressed in U.S. dollar equivalents.  - 2 - t The project will help finance construction and individual mortgages by commercial banks exclusively for households with an income equal to four times the national minimum wage. The World Bank loan will fund only housing projects with terms and conditions that allow full cost recovery. The total cost of the investment program for the period 1988-1993 is estimated at $1.576 billion. The balance of the.cost will be financed by the banking system ($717 million), by F0VI, the Housing Fund for Commercial Banks, ($402 million), and with homebuyers' down payments $157 million). The World Bank loan, which represents about 19% of the project's total funding requirements, was made to the National Bank for Works and Public Services (BANOBRAS). It will be channeled through the .Banco de Mexico as trustee of F0VI for onlending to the commercial banks. The Bank loan is for 15 years, including five years of grace, with a variable interest rate, currently 7.72 percent, linked to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.75 on the undisbursed balances. - 0 -