Mexico - Second Low-Income Housing Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15865 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (LOAN 3140-ME) June 26, 1996 Mexico Country Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalent Currency Units = Nuevos Pesos = 100 cents Average Exchange Rate 1989 US$1 NPMex 2.46 1990 US$1 NPMex 2.81 1991 US$1 NPMex 3.02 1992 US$1 NPMex 3.09 1993 US$1 NPMex 3.12 1994 US$1 NPMex 3.37 1995 US$1 NPMex 6.42 FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS BANOBRAS National Development Bank for Public Works and Services Banco Nacional de Obras y Servicios Publicos CETES Mexican Government Treasury Bills Certificados de la Tesoreria de la Naci6n FONHAPO Low Income Housing Fund Fondo Nacional de Habitaciones Populares DMW Daily Minimum Wage Salario Minimo Diario PRONASOL National Solidarity Program Programna Nacional de Solidaridad SEDESOL Ministry of Social Development Secretaria de Desarrollo Social FOVI Housing Fund for Commercial Banks Fondo de Vivienda Nacional INFONAVIT Housing Fund for Workers Instituto de Fomento Nacional de la Vivienda para Trabajadores This document has a restricted distribution and may be used by recipients only in the performance of their offiTcial duties. Its contents may not otherwise be disclosed without World Bank authorization.   MEXICO IMPLEMENTATION COMPLETION REPORT SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME Table of Contents EVALUATION SUMMARY ..................................................... i - iii PART I. PROJECT IMPLEMENTATION ASSESSMENT ...................................................... 1 A. Project Objectives ......................................................I B. Achievement of Objectives ......................................................1 C. Implementation Record and Major Factors Affecting the Project .............................................3 D. Project Sustainability ......................................................5 E. Bank Performance ..................................................... 6 F. Borrower Performance ..................................................... 6 G. Assessment of Outcome ......................................................7 H. Future Operations ..................................................... 8 I. Key Lessons Learned ..................................................... 8 PART II. STATISTICAL TABLES Table 1: Summary of Assessment .................................................... 11 Table 2: Related Bank Loans .................................................... 12 Table 3: Project Timetable .................................................... 13 Table 4: Loan/Disbursements: Cumulative Estimated and Actual .............................................. 14 Table 5a: Key Indicators for Project Implementation .................................................... 15 Table 5b: Estimated Number and Costs of Housing Units/Credits to be financed by FONHAPO under the proposed project ................................................. 16 Table 6: Studies Included in Project .................................................... 17 Table 7a: Project Costs .................................................... 18 Table 7b: Project Financing .................................................... 19 Table 8: Economic Costs and Benefits .................................................... 20 Table 9: Status of Legal Covenants .................................................... 21 Table 10: Compliance with Operational Manual Statemnents .................................................... 25 Table 11: Bank Resources: Staff Inputs .................................................... 26 Table 12: Bank Resources: Missions .................................................... 27 Table 13: FONHAPO - Sources and Application of Funds .................................................... 28 Table 14: Lending for Housing 1989-1994 .................................................... 29 Table 15: Housing Statistic .................................................... 30 APPENDIXES A. Mission's Aide Memoire, February 17,1995 .................................................... 32 B. Borrower's Contribution to the ICR .................................................... 38   IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) PREFACE This is the Implementation Completion Report (ICR) for the Second Low-Income Housing Project in Mexico, for which Loan 3140-ME in the amount of US$350.0 rmillion equivalent was approved on December 12, 1989 and made effective on March 13, 1990. The loan was closed on June 30, 1995 as originally planned. Final disbursement took place on June 12, 1995, at which time the loan was fully disbursed. The ICR was prepared by Mr. Howard A. Jones, consultant and reviewed by Mr. Richard Clifford, Task Manager and Sector Leader of the Mexico Country Department of the Latin America and Caribbean Regional Office. Preparation of the ICR was begun during the Bank's final supervision and completion mission in February, 1995. It is based on material in the project files. The Borrower contributed to the preparation of the ICR by contributing to the views expressed in the ICR and by preparing its own evaluation of project execution which is attached.   IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Evaluation Summary Introduction 1. This US$350 million loan, the Second Low-Income Housing Project, became effective in March, 1990. It was the third Bank operation which supported housing construction and housing policy reform in Mexico. It was followed by a Housing Market Development Project approved in 1992 to expand the supply of mortgage finance and to make policy and regulatory reforms to lower housing costs and improve the housing market in Mexico. Loan 3140-ME was closed in June 1995 and was fully disbursed. Total project costs amounted to US$750.1 million, compared with an SAR estimate of US$700 million, of which US$350 million was from the Bank loan. Project Objectives 2. The project aimed to: (a) increase the availability of housing credit for low income families; (b) further improve FONHAPO's level of cost recovery; (c) redirect its subsidies to the poorest groups; (d) improve the cost efficiency of housing solutions; (e) streamline the administrative procedures of FONHAPO and its borrowers; and (f) contribute to the improved planning and development of urban areas. Project objectives were not modified during project implementation, although funds were reallocated from the special investment program for progressive urban expansion and urban regularization and upgrading to the conventional investment program, and the definition of low-cost housing, to which 70% of all lending was to be directed, was revised from 1,600 minimum daily wages (dmw) defined under the loan to 1,742 dmw in 1991 and 1,920 dmw in 1992 and subsequently. Project objectives were clear, realistic and important for the country and the sector and for the Bank's Country Assistance Strategy because of their direct impact on family welfare and their economic importance in Mexico (paras 1, 2 and 5). Implementation Experience and Results 3. The loan increased the availability of housing credit for low-income families, financing 256,476 housing units, slightly more than the 250,00 units forecast at appraisal. However, some 49,175 investments were for urban infrastructure, included in the starter homes, but financed separately. Accordingly, there is some double counting which reduces the number of effective housing solution achieved. There was a substantial reduction in subsidies achieved as a condition of effectiveness when subsidies were reduced for all loans under 1,850 times the minimum daily wage (dmw) which was about US$5,850 at the time of appraisal, and was eliminated for all loans above this amount. However, the objective of improving the cost efficiency of housing solutions was not achieved as FONHAPO shifted its lending to finished houses and reduced lending for serviced lots and home improvements (paras 3-5).  ii 4. Distribution targets for investments by geographic area were only partly achieved as targets for the major cities were exceeded and those for smaller cities were not met. Lending through public institutions exceeded target levels and lending through social and private associations was not achieved. However, administrative procedures of FONHAPO were streamlined and its loan disbursement and repayment system strengthened. Part B of the project was only partly (50%) implemented. The financial targets on administrative costs and delinquency loan levels set for FONHAPO were only partially achieved. However, the three studies includbd in the project, on savings by low-income families, on building codes, design standards and administrative procedures, and on irregular settlements were carried out with some change;s .and delays, but achieved important results (paras 6-9). 5. The objectives of the project are sustainable. There is further scope for reducing housing subsidies. The project identified the need to work with stronger local housing authorities, and to encourage saving as a condition of participating as a beneficiary in FONHAPO projects (paras 20 and 2 1). 6. A number of factors affected project implementation. While housing investment increased significantly during the project implementation period, 1989-94 (from 273,000 units p.a. to 623,000 units p.a. and from US$2.9 billion to US$1 1.1 billion), FONHAPO's share fell from 15.6% to 6% of housing units financed and from 4.2% to 1.3% of the value of housing investments. Accordingly, FONHAPO only financed 39% of the 660,000 housing units planned for this period. This was due to a lack of government financial support, and a loss of confidence in FONHAPO on the part of the government, in 1992 and 1993, when the government considered closing FONHAPO and establishing a new institution with revised policies to deal with low-income housing. This loss of confidence was apparently due to FONHAPO's loan recovery problems caused by its loans to weak local housing associations. The government decided to continue supporting FONHAPO in mid-1 993, although with some policy changes following the guidelines set out in the Agreement to Develop and Deregulate Housing promulgated by the government in October 1992. In implementing this new agreement, during project implementation FONHAPO's regional offices were closed and its headquarters were moved requiring further changes in its operations and staffing (paras 12 and 16 -19). 7. During project implementation, due to increases in the average cost of housing relative to the minimum wage, the Bank agreed that, for purposes of evaluating FONHAPO's success in meeting the 70% monitoring indicator, the cost of a housing unit would be adjusted from 1,600 dmw to 1,742 dmw 1991 and 1,920 dmw for 1992. FONHAPO did not meet the lending targets for the special programs included in part B of the loan. It was difficult for local communities to prepare an urban development plan and a program to regularize (provide titles for) irregular settlements as required under this component and it was difficult to obtain a mortgage on the property until a legal title could be obtained, a condition for lending (paras 13 and 14). Bank and Borrower Performance 8. Project identification and appraisal were satisfactory, but the Bank failed to identify the risks associated with lending to social sector institutions and the assistance they would need to enable them to manage and account properly for individual subprojects, liens and subloans. A revised internal economic rate of return calculated for starter dwellings and home upgrading indicate that the economic benefits from the project exceeded those estimated at appraisal. The  iii Bank provided good continuity of staff during project preparation, appraisal and supervision which was consistent and sound. FONHAPO and government staff worked closely with Bank staff on project preparation and implementation. FONHAPO staff worked hard on institutional development and its decentralization program and provided data on project progress on a timely basis. The review of procurement documents was greatly speeded up during project implementation after BANOBRAS took over from FONAHPO responsibility for reviewing and authorizing local bidding documents (with ex-post Bank review) (paras 23-27). Project Outcome 9. In general, the outcome of the project can be considered satisfactory. Although overall FONHAPO did not achieve its lending targets for 1989-1994, the number and value of housing units financed with Bank resources were close to appraisal estimates and the economic rates of return exceeded them. Housing subsidies were reduced as planned. Finally, the studies carried out under the project have had quite positive impact (para 31). 10. A revised internal economic rate of return (IERR) was calculated for starter dwellings and home upgrading (Table 9). The IERR for the starter dwelling was 11.6% compared with the 10% estimate in the SAR, and the IERR for home upgrading was 23% compared with the 15.6%,o estimate in the SAR. These investments represent about 90% of investments financed under the project. The IERRs exceeded the SAR estimates as unit costs were below SAR estimates and rents (project benefits depend on the level of rent payments avoided) increased during the project implementation period (para 33). Findings and Key Lessons Learned 11. The government now considers that FONHAPO can adopt some of the policies and procedures of other effective housing institutions, such as FOVI, using market instruments more effectively, and encourage reforms by relating lending to performance. FONHAPO can further reduce subsidies, and work more effectively through the stronger state housing institutes (para 34). 12. It appears that the principal source of problems during project implementation were related to institutional weaknesses in FONHAPO and the associations through which it lent. FONHAPO has and continues to strengthen its institutional capabilities and plans to lend more through the sounder state housing institutes and devolve most of its loan administrative and collection functions to them. FONHAPO also plans to introduce a demonstrated capability as a condition for obtaining a FONHAPO housing credit to reduce the political component in beneficiary selection. Another approach which may enable FONHAPO to address the needs of the poorest groups more effectively might be to promote and direct more of its investments to irregular settlements, as was planned under the project, providing more time in project preparation to achieve the needed level of planning at the local level and the resolution of difficult land ownership and registration issucs (paras 36 - 39).   1 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) PART I - PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES 1. Project objectives were: (a) increase the availability of housing credit for low income families; (b) further improve FONHAPO's level of cost recovery; (c) redirect its subsidies to the poorest groups; (d) improve the cost efficiency of housing solutions; (e) streamline the administrative procedures of FONHAPO and its borrowers; and (f) contribute to the improved planning and development of urban areas. Project objectives were not modified during project implementation, although funds were reallocated from the special investment program for progressive urban expansion and urban regularization and upgrading to the conventional investment program. 2 . Project objectives were clear, realistic and important for the country and sector and for the Bank's Country Assistance Strategy because of their direct impact on family welfare and their political and economic importance in Mexico. The objectives were demanding for the implementing agency FONHAPO in the face of rising building costs and a decline in the real value of the minimum wage during the early phase of project implementation. Moreover, the new decentralization objectives pursued by the government during this period through all government housing finance organisms caused fundamental changes in FONHAPO's organizational structure and staffing which had an adverse impact on an already relatively weak institution. B. ACHIEVEMENT OF OBJECTIVES 3. The loan succeeded in increasing the availability of housing credit for low-income families, financing 256,476 housing units, slightly more than the 250,C00 units forecast at appraisal (Table 5a) . However, some 49,175 of these investments were for urban instrastructure, included in the starter homes, but financed separately. Accordingly, there is some double counting in the statistics which reduces the number of effective housing solutions. Moreover, more starter homes, costing more per unit than estimated at appraisal, and fewer serviced lots and home improvement projects were financed. 4. There was a substantial reduction in subsidies achieved as a condition of effectiveness of the loan when subsidies were reduced for all loans under 1,850 times the minimum regional daily wage (dmw), or about US$5,850 at the time of appraisal, and eliminated for all loans above this amount. At the same time, interest charges on all loans above 2,000 mdw were increased from 3% p. a. to 4% p. a., which was a real interest rate on loans denominated and repaid in multiples of the minimum wage. As FONHAPO lending shifted during project implementation to larger loans, subsidies were reduced further, but this goal conflicted with another project goal which was to redirect lending to the poorest groups.  2 5. The objective of improving the cost efficiency of housing solutions was not achieved. FONHAPO shifted its lending to finished houses and reduced lending for serviced lots and home improvements as mentioned above. Moreover, housing costs increased faster than the minimum wage, requiring an increase in the definition of low-cost housing (to which 70% of all lending was to be directed), from 1600 dmw defined under the loan to 1742 dmw in 1991 and 1920 dmw in 1992. 6. The distribution targets for investments by geographic area were only partly achieved. Some 23.5% of housing investments were in major cities compared with a target of 15%, and only 46% of housing investments were made in medium size cities compared with the 60% targeted. Investments in other, smaller cities, slightly exceeded targets (29.9% vs. 25%). Lending by type of subborrower differed from target levels also. Lending through public institutions over the project implementation period was 74% rather than the 60% targeted, and lending through social and private associations was 26% rather than the 40% targeted. Targets for expected subloan cost recovery set out in the SAR were eliminated when new subsidy levels by loar. size were introduced by FONHAPO as a condition of loan effectiveness (Table 5a). 7. The administrative procedures of FONHAPO were streamlined. New procedural manuals for the decentralization of FONHAPO's operations were published in early 1990, in-house seminars were held and technical assistance programs were carried out for FONHAPO subborrowers. Efforts were made to strengthen FONHAPO's capacity for administering its loan portfolio and external consultants helped FONHAPO to establish a computerized system linking loan disbursements and repayments to the accounting system to strengthen controls and reports on the loan portfolio. In parallel with the installation of the computerized system, FONHAPO began working with a commercial bank to handle repayments on its individual loan accounts. However, efforts to strengthen FONHAPO had to be revised as a result of government decisions to reduce public expenditures (1992), decentralize FONHAPO's operations (1993 and 1994) and eliminate FONHAPO's regional delegations (end 1993). Decentralization was begun following the Agreement to Develop and Deregulate Housing promulgated by the government in October 1992 which was to be implemented in 1993 and 1994 in all housing finance institutions. The decentralization aimed to reinforce the housing finance institutions' purely financial and development functions and transfer responsibility for project execution to the state housing institutions. As a result, FONHAPO staff numbered 460 at the end of 1994 rather than the 1,086 forecast at appraisal. 8. The objective of improving planning and development of urban areas through part B of the project, the special investment programs for progressive urban expansion and urban regularization and upgrading, was only partly (5 0%) implemented. However, additional housing infrastructure was provided in a number of irrregular settlements through PRONASOL (Solidarity) programs in 1991 and 1992. 9. The financial targets on administrative costs and delinquency loan levels set for FONHAPO were only partially achieved. Administrative costs as a percentage of investments greatly exceeded targets throughout the implementation period. Even in 1994 after staff numbers had been reduced to fewer than half of those forecast at appraisal, costs stayed high. Also the percentage of delinquent loans was several times the level forecast. Finally, the target levels for funding sources were different from those forecast, with FONHAPO internal cash generation significantly exceeding the share forecast (39% compared to 25%) and World Bank financing covering only 33% of requirements compared with a target of 50% (Table 5a).  3 10. Project design was appropriate for achieving project objectives, except that insufficient emphasis was given to the need for strengthening FONHAPO's accounting and management information systems and its system for monitoring loan portfolio. Moreover, the need to provide technical assistance to subborrowers to manage their accounts, title registration and subloan collections was not identified. The criteria for achieving some project objectives were fairly well defined through project monitoring indicators such as: targets for the distribution of housing solutions by type of unit, subloan size and geographic area. However, the funding targets were not in line with the appraisal forecasts. 11. Total project costs amounted to US$750.1 million, compared with an SAR estimate of US$700 million mainly because of larger than planned investments in the conventional program (Table 7a). Additional financing was provided by Government and subborrowers contributions while FONHAPO's contribution decreased. C. MAJOR FACTORS AFFECTING THE PROJE4ZT 12. Housing investments in Mexico increased steadily during the 1989 to 1994 period, from 273,000 units in 1989 to 623,000 in 1994 and from US$2.9 billion to US$11.1 billion respectively (Table 5, page 3). SEDESOL considers that an additional 100,000 units are built annually by the informal sector and do not appear in these statistics. Most of the increase was accounted for by increased financing by the commercial banks and the housing programs of INFONAVIT and FOVI. These are of course higher cost housing solutions but indicate that, at least through 1994, Mexico was getting closer to meeting the country's housing needs. However, it is not clear that the need for low-cost housing solutions was being met. FONHAPO only financed 39% of the 660,000 housing units planned for the 1989-1994 period and its share of housing units financed fell from 15.6% in 1989 to 6% in 1994 and its share of housing investments fell from 4.2% to 1.3% during this period. Additional finance for low-cost housing was supplied by PRONASOL (Solidarity) which financed some 135,000 units in 1991 and 66,000 in 1992 (largely serviced lots in irregular settlements). BANOBRAS also began direct financing programs for housing in 1990, mainly medium-term loans to finance land purchases for potential homeowners. 13. During this period, the average cost of a housing unit increased 68%, from US$10,580 to US$17,820, whereas unit costs for starter homes financed by FONHAPO increased 48%. The cost of housing increased faster than the minimum wage and accordingly, as mentioned above, the Bank agreed that, for purposes of evaluating FONHAPO's success in meeting the 70% monitoring indicator, the cost of a housing unit would be adjusted from 1600 dmw to 1742 dmw in 1991 and 1920 dmw in 1992. No subsequent adjustment was made. As a result of these revisions, as a total for the project period, FONHAPO was able to exceed the 70% target, achieving 73.8% of subloans under the above dmw targets. However, this was largely achieved by the heavy balance of low cost solutions in the early years of project implementation in 1990 and 1991. FONIIAPO considers that its financing responded to the demand. Land was being financed by BANOBRAS and infrastructure through PRONASOL programs. Accordingly, credit demand from FONHAPO was for starter homes and, after PRONASOL programs were eliminated in 1993, for urbanization works which were included as part of the starter dwellings in many cases but were financed separately. Another factor which may have affected demand for low-cost housing was the change in the distribution of income which occurred in the late 1980s and early 1990s. Whereas 31.5% of families had incomes under 1 minimum wage in 1984 only 5.6% of families had incomes under  4 1 minimum wage in 1992. Accordingly, the demand for the simplest housing solutions may have fallen relative to the demand (and the income to afford) more expensive ones. 14. FONHAPO achieved only in part the lending targets for the special programs included in part B of the loan (Table 5b). The conditions for lending for this component were much more difficult to fulfill than for the other loan component. An urban development plan was needed as well as a program to regularize (provide titles for) irregular settlements. FONHAPO however could not lend unless it could obtain a mortgage on the property which couldn't be obtained until a legal title could be obtained. The uncertainty and delays in giving title to the land made financing risky. Fortunately, PRONASOL introduced programs in 1991 which dealt with irregular settlements and its resources were provided on a grant basis. 15. FONHAPO also failed to meet the geographic targets in the loan, lending more to major cities and less to medium-sized cities than targeted. This was due in part to the continuing process of urbanization in Mexico, but to a considerable extent the allocation of investment was determined by the availability of land. Land was more available in larger cities. Also incomes tended to be higher in the larger cities, making higher cost solutions more affordable. 16. FONHAPO funding sources in the years 1990 to 1994 differed from the agreed targets. However, the actual funding ratios were relatively close to those projected during appraisal. At that time, FONHAPO was expected to provide 34% of required resources from internal cash generation, 26.7% from government transfers, 23.7% from the Bank loan and 14.9% from other sources to be identified. Actual figures were 38.3%, 28% and 33.7% respectively (there were no other sources of funds). Of course, the actual total sources of funds 1990-1994 was only two- thirds of the total forecast at appraisal, US$976 million compared with US$1,432 million, as FONHAPO's lending program was cut back significantly, beginning in 1991 (Table 5a). 17. FONHAPO's lending was also below 1990 levels in 1992. In October 1992 the Bank was informed that, in accordance with the new Agreement to Develop and Deregulate Housing, the government was planning to make major reforms to FONHAPO to improve its effectiveness in attending to the housing needs of the poor by reducing subsidies and targetting them to the most needy and by lending to individuals rather than groups, by relying more on decentralized entities (such as state housing institutions) and the private sector to help administer lending and loan collection activities. In March 1993, the Bank was informed that the government was considering abolishing FONHAPO and creating a new fund for low-income housing as it considered that FONHAPO's lending policies and procedures had become outdated compared with other housing institutions. Moreover, the government considered that a number of social groups which were beneficiaries of FONHAPO loans were not capable of accounting for and managing subloans. These groups accounted for a large share of FONHAPO's overdue loans. Delinquency rates greatly exceeded agreed targets (credits more than 4 months overdue amounted to some ' 7.2% of the loan portfolio compared with 2.5% targeted). 18. In response to a government request, the Bank provided advice on the policies a new low- income housing fund should follow, but the government advised the Bank in August 1993 that there was political opposition to the dissolution of FONHAPO and that accordingly it would continue in operation, although with some changes in policy. Chief among these was a change to individualize the granting and repayment of credits where social groups were not able adequately to account for and manage subloans, thereby reducing loan portfolio delinquency rates. A special  5 audit of FONHAPO commissioned by the government indicated that there were no serious problems in the way FONHAPO managed its operations and accounts. 19. FONHAPO reduced its staff numbers to a level well below targeted levels as headquarters staff numbers were reduced and the regional offices were closed. Accordingly, FONHAPO must now work more closely with local housing institutions and they must be capable of managing housing projects. To assist it in making loan collections (many beneficiary accounts have now been individualized and loan collections are made directly from the beneficiary rather than from the housing association or housing institute) FONHAPO works with commercial banks. Despite the large reductions in staff, administrative costs as a percentage of investments was well over target levels in every year and 10.6% in 1994 compared with a 5% target. This is apparently due to high redundancy payments, higher costs of banking services and significantly smaller investments than expected. A significant decline in administrative expenses is expected in 1995 as reflected in FONHAPO's financial statements for the first six months of 1995. D. PROJECT SUSTAINABILITY 20. The objectives achieved by the project are sustainable. In recent years, the costs and difficulties in obtaining building permits, licenses, registering mortgages, etc. have been greatly reduced. Savings programs for low-income families have been developed, facilitating down payments, lowering borrowing requirements, improving creditworthiness and providing a demonstrated justification (savings performance) for allocating scarce loan resources. State housing institutes have been strengthened in some states to manage the planning, technical, administrative, legal and financial aspects of housing programs thereby reducing FONHAPO's functions to normative, review and control functions in such states. In those states where housing institutions are weak FONHAPO can continue to work through established housing associations, individualizing loans and the mortgage guarantees which back them. However, in accordance with the policies outlined in the Agreement to Develop and Decentralize Housing, FONHAPO plans to work as much as possible with state housing institutes which would be responsible for the administration of housing projects, the formalization of guarantees and the collection of individual subloans and repayments to FONHAPO. This would allow FONHAPO to concentrate on policy, planning, data collection and studies of the economic and social impact of its programs. 21. There is some further scope for reducing housing subsidies. The larger, less subsidized loans could be repaid over a longer time period without signicantly increasing monthly payments. FONHAPO loans are only up to 13 years while FOVI, which completely eliminated subsidies, now lends for up to 30 years. Altematively, interest rates on FONHAPO loans could be increased or FONHAPO could adopt a repayment system like FOVI's where loans are denominated in pesos rather than multiples of the minimum wage and interest is charged at commercial rates. Repayments are based on the minimum wage and the amount by which such payments fall short of the commercial terms is added to the outstanding balance of the loan. 22. Accordingly, there is a good possibility for FONHAPO to develop a sustainable program for low-cost housing provided it strengthens its management and systems, reduces subsidies and redirects its lending to the extent possible through state institutions which finance housing projects of individuals with a demonstrated savings record.  6 E. BANK PERFORMANCE 23. In May 1988, the Bank identified the need for lower cost housing solutions ar.d for FONHAPO to strengthen its assistance to its borrowers. Identification was satisfactory and identified investments which could produce high economic benefits, address poverty and institutional issues and support a project to which the government gave high priority. Appraisal also was satisfactory, producing a soundly conceived project and accurately identifying some of the major project risks. It failed however to identify the risks associated with lending to social sector institutions (associations) and the assistance they needed to enable them to manage and account properly for individual subprojects, liens and subloans. The loss in confidence in FONHAPO by the government was apparently due in large measure to FONHAPO's inability to collect from its subborrowers on a timely basis and this adversely affected the government's commitment to the project and the flow of funds to FONHAPO. 25. There was relatively good continuity of Bank staff during project preparation, appraisal and supervision until the end of 1993 when almost all the loan was committed. Twelve supervision missions were held over five years (Table 12) with urban and financial specialists on all missions, assisted by procurement specialists on two occasions. Project ratings were good until the September 1992 supervision mission, when overall project status was reduced to a 2, even though FONHAPO's lending had been considerably below forecast, progress on Part B of the project had been very slow and a significant part of the loan portfolio was in arrears. 26. Project ratings appear to have focussed on progress in disbursing Bank funds rather than progress on FONHAPOs overall program. In 1992 and 1993 when the government was considering replacing FONHAPO, the project was never below a 2. Inadequate attention was paid to overall development impact which was significantly reduced by severe cutbacks in FONHAPO's lending programs. However, compliance with loan covenants was carefully reported and enforced. Bank staff worked well with FONHAPO and SEDESOL staff and provided prompt advice when requested. Support and training by Bank procurement specialists was good, and this enabled BANOBRAS to take over from FONHAPO responsibility for reviewing and authorizing local bidding documents (with ex-post Bank review), with a considerable reduction in authorization time, thereby accelerating project implementation. F. BORROWER PERFORMANCE 27. FONHAPO and policy units of government worked closely with Bank staff on project preparation and implementation. Work on other Bank projects in housing with FOVI assisted in defining the policy framework. FONHAPO staff appear to have worked hard on its institutional development and decentralization program and provided needed progress reports and other project documents on a timely basis, but it lost key staff at certain junctures in project implementation. Staff reductions mandated by government for budget reasons, the closing of its regional offices and moving its headquarters complicated FONHAPO's work further. The government's commitment to FONHAPO's program appeared to lessen in 1991 and its concerns about the institution continued even after August 1993 when it determined that FONHAPO could not be abolished. 28. In the early part of 1993, FONHAPO had some financial problems when budget resources were slow in coming. When government decided that it would pass Bank loan funds on to FONHAPO on commercial terms, government was obliged to provide two types of subsidy to FONHAPO, one to cover its operating deficit and the other to cover the financial costs of its debt  7 service. Due to delays in providing this second subsidy in 1993, FONHAPO was for a period short of funds. 29. The review of procurement documents was greatly speeded up during the project as mentioned in para. 26 above. Accounts and audits were supplied with minimal delays and clean opinions, and compliance with loan covenants was good. Studies were also carried out close to prescribed timetables and their recommendations were implemented. 30. It now appears that the government is planning to continue to reform FONHAPO's policies and procedures, strengthen it institutionally and give it high priority in dealing with the demand for low-income housing. G. ASSESSMENT OF OUTCOME 31. In general, the outcome of the project can be considered satisfactory. Although overall FONHAPO did not achieve the lending levels established in its medium-term plan for 1989-1994, the number and value of housing units financed with Bank resources were close to appraisal estimates. The economic benefits of the investments supported by the loan were also close to appraisal estimates. Moreover, housing subsidies were reduced as planned. Although more starter homes were financed than forecast which benefited a higher income strata than planned, it appears that this was largely in response to demand which was affected by related housing investments and loans financed by PRONASOL and BANOBRAS for urban infrastructure and land respectively. Also, there appears to be some justification for the greater than targeted investments in larger cities. The higher than targeted lending through public as opposed to sociallpnvate associations is now the direction in which FONHAPO plans to move for project administration and loan collection purposes. 32. The three studies included in the project were carried out with minor delays and achievements were substantial (Table 6). The study on savings mobilization was a useful adjunct to that carried out by the Bank of Mexico. It identified some of the obstacles to saving by low- income families and resulted in the creation of some new schemes and the reactivation of an old scheme to encourage financial savings by such groups. Such schemes facilitate down payments for housing and reduce the need for financing and can provide a useful guide for identifying beneficiaries of housing programs based on savings performance. The study of building codes, design standards and administrative procedures helped to identify the costs and time required to obtain building permits, licences, register mortgages, etc. Accordingly, FONHAPO was able to exert pressure on state and local govemments to reduce costs and simplify procedures when projects were presented to it. In 1993, in accordance with the Agreement to Develop and Decentralize Housing referred to in para 7, SEDESOL initiated a national program to deregulate and reduce such costs at the state level. Incentives have been offered (e.g. larger amounts of housing finance) and the cost reductions have been significant. The study of irregular settlements defined the problems in this area much better. The study data were shared with the states and they have been useful in preparing long term urban development plans and in defining policies to deal with such settlements at the local level. 33. A revised intemal economic rate of return (IERR) was calculated for starter dwellings and home upgrading (Table 8). The IERR for the starter dwelling was 11.6% compared with the 10% estimate in the SAR, and the IERR for home upgrading was 23% compared with the 15.6% estimate in the SAR. These investments represent about 90% of investments financed under the  8 project. The IERRs exceeded the SAR estimates as unit costs were below SAR estimates and rents (project benefits depend on the level of rent payments avoided) increased during the project implementation period. H. FUTURE OPERATIONS 34. As mentioned above, the government now considers that FONHAPO can adopt some of the policies and procedures used by other effective housing institutions such as FOVI. FONHAPO can further reduce subsidies, work more effectively through the stronger state housing institutes, and work to strengthen other public and private housing associations. In doing this, FONHAPO can probably use market instruments more effectively, and encourage reforms by relating lending to performance. It can encourage savings and reduce the political component of lending decisions at the local level by requiring beneficiaries to have a demonstrated savings record. Eventually, FONHAPO may be able to adopt some other mechanisms used by FOVI such as auctioning its resources to builders. 35. Provided that the government has a clear view of its role, appoints an appropriate management and provides it with sufficient resources to carry it out, FONHAPO can continue to fill an important gap in housing finance in Mexico. I. KEY LESSONS LEARNED 36. It appears that the principal sources of problems during project implementation were related to institutional weaknesses in FONHAPO and the associations through which it lent. The project was fairly well designed but it did not identify what turned out to be a major risk, the institutional capabilities of the associations which managed the housing projects financed by FONHAPO. Their weaknesses in accounting for the individual housing units in the projects they managed, in registering the liens against the individual properties, and in managing the individual mortgage loans and their repayments was the principal reason FONHAPO's portfolio arrears were so high throughout the implementation of the loan and appears to have been one of the principal reasons for the government's loss of confidence in FONHAPO in 1992 and 1993. A more detailed knowledge of the strengths and weaknesses of such associations might have helped considerably in designing technical assistance programs for them and suggesting changes in FONHAPO's policies for dealing with them. 37. FONHAPO has already revised its policies to lend more through the sounder state housing institutes. However, at least in some states it will need to continue to lend through less effective public and private institutions. It will need to develop minimum standards for such institutions and have training and technical assistance programs available for those which need assistance. In order that it will have ultimate recourse to individual beneficiaries it plans to individualize mortage liens and in some cases seek payment directly from beneficiaries, although this is a costly process. Ideally, it will work with strong state housing institutes and devolve most of the loan administrative and collection functions to them. 38. The other somewhat related issue, which also may have caused some concern on the part of the government with FONHAPO's performance was the apparent political component mn beneficiary selection. While it is unlikely that this element can be completely eliminated from any subsidized program, FONHAPO now plans to introduce a demonstrated savings capability as a condition for obtaining a FONHAPO housing credit.  9 39. Another approach which may enable FONHAPO to address the needs of the poorest groups more effectively might be to promote and direct more of its investments to irregular settlements as was planned under the project. FONHAPO leamed during project implementation that the lead time in preparing projects for irregular settlements is significantly greater than for regular projects, requiring greater planning at the local leve; and the resolution of difficult land ownership and registration issues. Careful development oi projects of this type over a longer time frame could lead to some important housing projects with high social ana economic benefits.  10 PART II - STATISTICAL TABLES  11 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 1. Summary of Assessments A. Achievement of Objectives Achievement of Objectives Substantial || Partial | igible |NotA li Macro policies X Sector Policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues x Other social objectives X Environmental objectives X Public sector management X Private sector development X Other _ _ | X B. Project Sustainability I Project sustainability If Likely Unlikely Uncertain 1: 11 x iiE=l _C. Bank Performance Bank Performance || Highly satisfactory Satisfactory | Deficient Identification If X || Preparation assistance X || Appraisal II II X| Supervision __ x X_11_ 11 ____________________ - D. Borrower Performance [Borrower Performance Highl stis~factory ]I Satisfactory ]~Deficient Preparation I iix Implementation Covenant compliance X E. Assessment of Outcome [Assessment of Outcome Highiy satisfactor Satisfacto j1 Dericient  12 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 2. Related Bank Loans / Credits Loan / Credit Purpose Year of Status l____________________J llApproval l Preceding Operations 1. Loan 2665-ME Infrastricture and housing 1986 completed Earthquake Construction reconstruction for Mexico city _ 2. Loan 2947-ME Housing Support reforms to allow 1988 completed Finance commercial banks full cost recovery on mortgage loans Following Operations 1. Loan 3497-ME Housing Expand supply of mortgage 1992 ongoing Market Development finance, policy, and Project regulatory reforms to lower housing costs and improve housing market _.  13 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 3. Project Timetable Steps in Project Cycle ]Date Planned IDate Actual Identification n/a May 12, 1988 Preparation July 1988 - March 1989 August 1988 - February _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 9 8 9 Appraisal June 1989 March 6-17, 1989 Post-Appraisal Not planned June 19-23, 1989 Negotiations November 1989 October 11-13, 1989 Board presentation December 1989 December 12, 1989 Signing January 1990 January 23, 1990 Effectiveness April 1990 March 13, 1990 Project Completion December 31, 1944 February 15, 1995 Loan Closing June 30, 1995 June 30, 1995 n/a - not available  14 MPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 4. Loan Disbursements: Cumulative Estimated and Actual (US $millions) |FY90 |FY91 FY92 FY93 FY94 FY95 Appraisal estimate' 39.4 87.5 157.5 262 5 332 5 350.0 Actual 12.8 104.8 149.9 246.8 311 1 350.0 Actual as % 32.5 119.8 95.2 94.0 93.6 100.0 V/ Source: SAR Date of final disbursement: June 12, 1995  15 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 5a. Key Indicators for Project Implementation KFY INDICATORS | 990 | 1991 1992 1993 [ 1994 | Totals | SAR [ Actual | SAR [ Actual I SAR Actual I SAR | Actual | SAR Actual I Total Itivestments 1871 180/ 348/ 80/ 377/ 77/ 377/ 256/ 377/ 84.' 1666/ 677/ No of subloans / Units Financed 28,024 101,045 52,230 13,834 56,582 27,715 56,582 93,586 56,582 20Q296 250,000 256.476 Loans Financed(MilhionsofN-P) 2712 623 8 3545 3260 3664 461 7 3664 4148 3664 331 3 17248 21576 2 Distribution of Investments (%) A By Type of Unit Starter Home 70 3 76 0 74 6 88 6 74 6 79 2 74 6 88 1 74 6 87 4 73 8 83 8 ServicedLot 137 160 13.3 60 133 25 133 16 133 29 133 58 Home Improvement 16 0 8 0 12 1 5 4 12 1 18 3 12 1 10 3 12 1 9 7 12 9 10 4 B By Subloan Size Value>160QNNc1\V 30 0 13 8 30 0 15 6 30 35 0 30 28 4 30 38 3 30 26 2 Value<1600xMW 70 0 86 2 70 0 84 4 70 65 0 70 71 6 70 61 7 70 738 C By Type Of Subbonower Social/Private 40 0 12 8 40.0 19 2 40 0 21 5 40 0 32 9 40 0 48 4 40.0 25.8 Public 60 0 87 2 60 0 80 8 60 0 78 5 60 0 67 1 60 0 51 6 60 0 74 2 D By Geographic Area Major Cities 15 14 9 15 19 3 15 29 2 15 21 9 15 325 15 23 5 Med Size Cities 60 601 60 50 2 60 44 4 60 42 7 60 35 8 60 46 6 Other 25 25 0 25 30 5 25 26 4 25 35 4 25 31 7 25 29 9 3 Funding Sources (% of totals) A FONHAPO Intemal Generation 25 36 0 25 35 0 25 28 8 25 46 7 25 49 2 25 39 2 B Government Transfers 25 24 9 25 31 3 25 36 2 25 23.8 25 22 2 25 27 6 C IBRD so 391 50 33 7 50 35 0 50 29 5 50 28 6 50 33 2 D Other - - - - E Total 100 100 100 100 100 100 100 100 100 100 100 100 4 StalT(Numbers) A Headquarters 589 667 589 589 589 481 589 450 589 448 589 449 B Regional Offices 497 462 497 435 497 368 497 272 497 12 497 II C Total 1086 1129 1086 1024 1086 849 1086 722 1086 460 1086 460 D Administ Costs/lnvestments 5% 8 7% 5/% I1 6% 5% 11 4% 5%/s 10 7% 5% 10 8% 5 0% 10 6% 5 Percentage ofFONO-APOCredits 2 5 14 3 2 5 177 2 5 17 2% 2.5 18 7 2 5 20.8 2 5 17 7% Delinquent by >4 months I___III___  16 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW INCOME HOUSING PROJECT (Loan 3140-ME) Table 5b. Estimated Number and Costs of Housing Units/Credits to be financed by FONHAPO under the proposed project KEY INDICATORS I No. or % or Total Av. Cost | Av. Cost | Total Cost Total Cost % of Total IN SAR Unit/Creditb By Program Multiple of Min. (US S June Multiples of Min. Wage Million ofJune Investment l To be Financed [ Wage [ 19S9) T 89 USS Goal Actual Coal Actual Goal Actual Goal Actual Goal Actual Goal Actual Goal Actual Conventional Investment 190,000 240,599 76 94 955 851 3,010 2,820 181,555,555 204,761,941 571.5 678 4 86 94 Program _ Serviced Lots 95.000 51,397 38 20 444 393 1,400 1,302 42,180,000 20,199,021 132.9 66 9 20 9 Home Improvements 60,000 59,460 24 23 1,160 252 3,655 835 69.600,000 14,983,392 219.3 49 6 33 7 Starter Dwellings 35,000 83,575 14 33 1,990 1,839 6,265 6,094 69,600,000 153,698,080 219.3 509.3 33 71 Urbanization Included 46,167 18 344 1,140 15,881,448 52.6 7 in Starter Dwellings Special Investment 60,000 15,877 24 6 476 852 1,500 2,824 28,571,430 13,527,204 900 44.9 14 6 Program l l l l l l l l l_I_I_I I_I ___ UrbanExpansion 37,000 12,869 15 5 386 973 1,216 3,225 14,285,700 12,521,537 45.0 41.5 7 6 Urban Regularization 23,000 9 621 1,957 14,285,700 45.0 7 Urbanization Included 3,008 1 344 1,440 1,034,752 3 4 in Starter Dwellings TOTALS 250,000 256,476 100% 100% 218,289,145 661 5 723.3 100% 100%  17 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 6. Studies Included in Project Purpose as Defined at Appraisal/ Impact of Study Study Status Study of Building To identify specific ways to modify and Completed in The results of the study were sharec codes, design revise existing codes and regulations which January 1992 (16 with FOVI and published to direct standards and add cost and time to the construction and months behind developers investments to the states administrative purchase of low-income housing and to schedule) and municipalities with the lowest procedures recommend ways to get such revisions and costs and most efficient regulatory modifications accepted into law system. Subsequently SEDESOL began a program to reduce permit, licensing and registration costs at the state level and the programs have met with great sucess such costs being reduced by more than half on average. Irregular In parallel with the execution of the two Three studies were The results of the studies (three studies settlements study special investment programs supported by carried out one in for different regions where carried out the project, study the housing and related 1991, another in in 1991, 1992 and 1993), were shared needs of residents of irregular settlements 1992 and a thrid in with the state and local governments and develop recommendations that will 1993. and they were very useful for their long allow FONHAPO better to address these term urban planning. needs through its programs Study on savings To provide a better understanding of Completed in March Bank of Mexico was carrving out a mobilization savings patterns and the need for financial 1992 about six similar study and the two studies were services among low-income families, with months behind used to develop new savings programs the aim of mobilizing additional resources schedule. Findings with commercial banks for low-income for housing finance by identifying effective reviewed with Bank. families and to devise other savings ways to encourage low-income families to mechanisms (renewal of post offices save and financial institutions to provide savings). Also studies led to important banking services to the same population changes in the lending policies in that groups. demonstrated savings performance is being applied as a condition of lending which guarantees down payments, reduces need for lending, improves credithworthiness of borrowers.  18 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 7a. Project Costs (US $millions) Appraisal Estimate | Actual Local J Foreign Total Local T Foreign Total costs costs j costs costs 1. FONHAPO Credits Conventional Programs 491.7 79.6 571.3 588.2 90.2 678.4 Special Programs 77.3 15.7 93.0 38 9 6.0 44.9 Subtotal 569.0 95.3 664.3 627.1 96.2 723.3 2. Other Costs X Technical Assistance and Studies 7.6 7.6 2.8 2.8 Project Administration 28.1 28.1 24.0 24.0 Subtotal 35.7 35 7 26.8 26.8 Total 604.7 95.3 700.0 653.9 96.2 750.1  19 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 7b. Project Financing (US $million) Ap raisal Estimate Actual Local Foreign Total Local Foreign Total ___________________ Costs Costs Costs Costs Bank 254.7 95.3 350.0 253.8 96.2 350.0 Government 140.0 140.0 194.5 194.5 FONHAPO 175.0 175.0 136.6 136.6 Subborrowers/Beneficiaries 35.0 35.0 69.0 69.0 Total 604.7 95.3 700.0 653.9- 96.2 750.1  20 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJFCT (Loan 3140-ME) Table 8. Economic Costs and Benefits Revised Internal Economic Rate of Retun Calculations Years ____1 2 - 25 Starter Dwelling Costs (US$dollars) Land and Urbanization 1,100 Construction 3,410 Maintenance 34 Benefits (US$dollars) Imputed Rent 600 IERR= 11.6% Home Upgrading (US$dollars) Costs Construction 835 Maintenance 8.35 Benefits (US$dollars) Imputed Rent 200 EERR = 23%  21 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW INCOME HOUSING PROJECT (Loan 3140-ME) Table 9. Status of Legal Covenants Agreement Section Covenant Presen Original Revised | Description of Covenant Comments Type t Fulfillment Fulfillment | Status Date Date l Loan 3.01 3 C FONHAPO, BANOBRAS and Government-will enter into relending agreement, satisfactory to Bank. 4.01(b) 5 C FONHAPO will carry out Part C of the Project under terms of reference acceptable to Bank and accordance with the following timetable (see below). Decentralization under Part ________ __________ ________ ~~ ~~C . (a) CD 12/31/90 1/31/91 (a) revise operation manual FONHAPO furnished revised manual to Bank 1/91. C 12/31/91 (b) Implementation of FONHAPO management decentralization program fully implemented operational. decentralization program. Revisions of Procedures Manuals under Part C. I (b) C 6/30/91 (a) Submit to Bank drafts of FONHAPO issued revised revised procedures manuals for manuals in late 1990. decentralization program. C 12/31/91 (b) Finalize and implement Implementation revised procedures manual. completed. Trainine under Part C .1 (c! FONHAPO furnished Training Program to Bank C 6/30/90 Submit to the Bank for review in 6/90. Updated program and comment a training program discussed during 9/92 to be implemented. SPN mission. Studv on Building Codes and Admin. Procedures under Part C.2(a) CD 9/30/91 (a) Complete the study and Draft study presented to submit to Bank for comments. Bank in 1/92. CD 12/31/91 b) Discuss with Bank the study Discussed by 9/92 SPN results including an mission; FONHAPO implementation plan. implement study recommendations. Study of Irregular Settlements ._______ ______ _________ under Part C.2(bU C 9/30/90 (a) Complete the study and FONHAPO and Bank submit to Bank for comments. agreed that 3 studies would be carried out for different regions in 1991, .__________ . . - - - = - ___________________________ 1992 and 1993.  22 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW INCOME HOUSING PROJECT (Loan 3140-ME) Table 9. Status of Legal Covenants Agreement Section Covenant Present Original Revised Description of Covenant Comments Type Status Fulfillment Fulfillment Date Date C 12/31/91 (b) Discuss with Bank the study Study results reviewed results including an with states to assist in implementation plan. urban development plans. Study of Saving Mobilization under Part C.2(c) CD 9/30/31 (a) Complete the study and Draft study presented to submit to Bank for conunents. 3/92 SPN mission. CD 12/31/91 (b) Discuss with Bank the study FONHAPO has results including implementation implemented study plan. recommendations. 4.03(c) 5 To assist in Part C of the Bank had approved all Project, FONHAPO will employ TORs for studies. consultants under TOR .________ _satisfactory to Bank. 4/04 9 C FONHAPO will monitor the Information contained in economic, financial and social FONHAPO's annual impact of subprojects on the evaluation reports. basis of indicators and criteria acceptable to Bank. CD by 3/31 of FONHAPO will submit to Bank FONHAPO has funished each year an annual evaluation report of annual report to Bank. its Program and Project execution. CD by 5/31 of FONHAPO will discuss with Discussions took place each year. Bank its annual evaluation and plans were executed, report and execute satisfactory though with delays. plans of actions to remedy any l __________ problems. l 4.05(a) 9 C 12/31/91 FONHAPO will carry out jointly Progress reviewed during with Bank a review of the SPN missions. results of the two special investment programs (Part B of ___ ___ __ ___ ___ __Project). 4.05(b) 10 C 5/31/92 FONHAPO will submit to Bank FONHAPO established a a plan of action including an new Delegation in 1992 to implementation timetable to help implement special incorporate lessons learned from investment programs. these two programs into its l__________ conventional operations. 4.05(c) 10 CP 1/1/93 FONHAPO will start to Success of program implement such a plan of action. limited.  23 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW INCOME HOUSING PROJECT (Loan 3140-ME) Table 9. Status of Legal Covenants | Agreement Section Covenant Present Original Revised Description of Covenant Comments Type Status Fulfillment Fulfillment Date Date 4.07 9 CD by 3/31 of OFNHAPO will carry out a FONHAPO carried out each year survey of the collection surveys, the first of which l performance of subborrowers was not completed until on loans to beneficiaries and end 1992. forward the results to the Bank. For those subborrowers lwith collection problems, FONHAPO will establish an action plan which includes annuel collection targets together with a technical assistance program to help subborrowers achieve targets. Should the subborrowers fail to meet the collection targets, FONHAPO will refrain from providing with new loans. 5.02 1 CD by 6/30 of BANOBRAS/FONHAPO will Reports received usually each year furnish to the Bank the with one to three months external auditor's report on delay. Two opinions had FONHAPO's financial minor qualifications which statements, project accounts were subsequently and Special Account. resolved. Annex 5 C FONHAPO will ensure that I to Criteria for Selection of Schd. 2 Subprojects Under Part A of Project (FONHAPO's Conventional Investment Program) are met. Annex 5 C FONHAPO will ensure that 2 to Criteria for Selection of Schd. 2 Subprojects Under Part B of l ~~~~~~~~~~~~~~~~~~~Project (Special Investmentl Program) are met. Guarantee 2.02 3 C Government, BANOBRAS and l ~~~~~~~~~~~~~~~~~FONHAPO wvill enter intol relending agreement satisfactory to the Bank. _ 2.03 3 C Government will make arrangements satisfactory to the Bank promptly to provide funds required to carry out the . ___________ . _______. __ project.  24 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW INCOME HOUSING PROJECT (Loan 3140-ME) Table 9. Status of Legal Covenants Covenant Types: 1. Accounts/Audit 2. Financial performance 3. Flow and utilization of project funds 4. counterpart funds 5. Management aspects of the project or executing agency 6. Environmental covenants 7. Involuntary resettlement 8. Indigenous people 9. Monitoring, review and reporting 10. Project implementation not covered by categories 1-9 11. Sectoral or cross-sectoral budgetary or other resource allocations 12. Sectoral or cross-sectoral policy/regulation/institutional action 13. Other. Present Status: C = Complied CD = Complied with delay CP = Partially complied NC = Not complied.  25 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 10. Compliance with Operational Manual Statements There was no significant lack of compliance with applicable Bank Operational Manual Statements.  26 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 11. Bank Resources: Staff Inputs Stage of Project Cycle Planned | Actual l Weeks [US$ 000's l Weeks US$ 000's 30.0 53.1 Preparation to appraisal na. n.a. l_ 3_0__3. Appraisal n.a. n.a. 29.3 60.8 Negotiations through Board Approval n.a. n.a. 4.5 10.7 Supervision n.a. n.a. 63.4 164.9 Completion 6.0 13.8 6.0 13.8 Total 133.2 303.3  27 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND-LOW INCOME HOUSING PROJECT (LOAN 3140-ME) Table 12. Bank Resources: Missions Performance Rating 2/ Stage of Project Date Number Specialized Days in Implementation Development Types of Cycle of staff skills field Status Objectives problems persons represented 2/ = ... 1/ - Preparation to 4/88 3 H, F 10 not applicable not applicable Appraisal 10/88 2 H, F 10 not applicable not applicable 3/89 3 H, F 10 not applicable not applicable Appraisal through 6/89 2 H, F 3 not applicable not applicable Board Approval _ Supervision 3/90 4 H, F, P 9 1 1 ST 5/90 2 H, F 15 1 1 ST 9/90 1 H 3 1 1 ST 3/91 2 H 4 1 1 8/91 3 H, F, P 4 1 1 PM 3/92 3 H, F 6 1 1 CL 9/92 3 H, F 10 2 2 PM, F 3/93 2 H, F 4 2 2 PM, F 9/93 2 H, F 3 2 2 PM. F 12/93 2 H, F 4 2 2 PM, F 2/95 5 H, F 4 S S PM, F Completion 11/95 1 H, F 5_ _ 1/ H = Housing; F Finance; P Procurement 2/ 1 = Problem Free; 2 = Moderate Problems; S = Satisfactory 3/ ST= Studies Progress; PM = Project Management; CL = Compliance with Legal Covenants; F Financial Performance  28 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW INCOME HOUSING PROJECT (Loan 3140-ME) Table 13. FONHAPO-Source and Application of Funds 1989-1994 (US $millions) I_ IG UM_ I __U182l 93____I_ o~~ ~ ~~~~~~~~~~~~~~~ I = = Sird fRrvE____ _ PPWOlrnmid G3wd MfO sQ e54 e5O 816 629 se. 1a 58 llal 1m4 1325 85.e GwTrftTra3 53a6 257 7a1-470 81.2 5a2 7a1 71.4 73L1 51.1 81. 4a1 L=2312-AE 4&7 47.2 Lm 314W.E 1Q1 728 73a Ei 6Qs 89.7 60 9.7 6a3 1.C 61. cow 157 3aB1 4Q1 354 167 e28 _ _ _ _ _ 19s;9 123L6 ;"a4 1EaE s1 12 29 12 9 2a 197.2 27.6 2148 297.2 195L AWiciimnd R zn_ _ __ _ _ __ _ _ __ _ _ _ oudt 1821 1144 23B7 16 28 Zr1 13Qs 254. 1M9 s4. 157 eMI 134.e ____i_______ 7 7.0 S lra 11.2 2 11.6 225 11e 2a 11.0 21.C Irp V tVadB _ _ _ 5.__ a 1a1 22 3_ 9 I 3a7 cow 44 22 a1 4. 22 Q7 1. e.6 11 Q1 Q4 a0 193sa 1182a q 2__ 179.0 29Bq 197. 297.6 214. 297.2 195q  IMPLEMENTATION COMPLETION REPORT MEXICO SECOND-LOW INCOME HOUSING PROJECT (LOAN 3140-ME) Table 14. Lending for Housing 1989-1994 (Investments in Millions of New Pesos) OTHER INDICATORS 1989 1990 1991 1992 1993 1994 Unit Investment Unit Investnmet Unit Investment Unit Investment Unit Investment Unit Investmcnt FONHAPO 42,834 303.0 59,506 479.8 33,555 430.8 39,205 470.7 47,825 488.6 37,770 457.4 FOVI 17,121 798.3 30,720 930.4 30,772 1,061.3 24,638 1,016.8 22,089 695.1 42,721 3,700.0 FOVISSTE 19,848 506.7 24,986 744.4 48,178 1,324.2 34,977 843.2 35,231 1,343.0 44,000 1,367.6 INFONAVIT 71,925 2,237.0 89,536 3,372.6 57,338 3,884.6 89,033 5304.2 110,000 6.273.7 128,000 8,779.2 Connercial Banks 35,883 2,869.7 41,557 3,359.4 35,056 2,949.5 129,362 20,991.0 120,049 21,863.2 138,839 21,000.0 State Organizations 35,443 105.7 39,595 193.8 58,987 276.2 17,919 297.6 12,905 338.0 32,900 433.0 BANOBRAS 2,820 24.8 13 83.8 11,748 389.5 22,189 559.4 35,656 470.4 PRONASOL 13,4892 134.3 66,133 73.2 FIVIDESU(DDF) 38,623 51.0 58,323 215.9 5,335 99.5 4,515 276.3 6,331 262.0 730 354.9 Othes 12,081 259.5 4,683 381.0 5,368 844.5 12,338 10,083 6,974 712.2 162,675 909.1 Totals - Units & MilliomofPesos 273,758 7,131.0 351,626 9,702.1 409,694 11,088.7 429,868 30,674.8 383,593 32,535.2 62,329.1 37,481.6 US$Milhions 2,897 3,449 3,674 9,911 10,441 11,105 PERCENTAGES FONHAPO 15.6 4.2 16.9 4.9 8.2 3.9 9.1 1.5 12.5 1.5 6.0 1.3 FOVI 6.3 11.2 8.7 9.6 7.5 9.6 5.7 3.3 5.8 2.1 6.9 9.9 FOVISSTE 7.3 7.1 7.1 7.7 11.8 11.9 8.1 2.7 8.9 4.1 7.1 3.6 INFONAVIT 26.3 31.4 25.5 34.8 14.0 35.0 20.7 17.3 28.7 19.3 20.5 23.4 ConmmrcialBanks 13.1 40.2 11.8 34.6 8.6 26.6 30.1 68.4 31.3 67.2 22.3 56.0 StateOrpanizations 12.9 1.5 11.3 2.0 14.4 2.5 4.2 1.0 ^.4 1.1 5.3 1.2 BANOBRAS 0.8 0.3 0.8 2.7 1.3 5.9' 1.7 5.7 1.3 PRONASOL 32.9 1.2 15.4 0.2 FIVIDESU(DDF) 14.1 0.7 16.6 2.2 1.3 0.9 1.1 0.9 1.7 0.8 0.1 1.0 Ohers 4.4 3.7 1.3 3.9 1.3 7.6 2.9 3.4 1.8 2.2 26.1 2.4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0  30 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND LOW-INCOME HOUSING PROJECT (Loan 3140-ME) Table 15. Housing Statistics Other Indicators 1990 1991 1992 1993 | 1994 Average Cost of Finished Units Services Lots 262.7 4,206 696.8 571.6 566.5 Housing Improvements 185.4 309.9 221.0 298.3 297.0 Starter.Homes 1448.5 1508.2 2065.3 2124.4 1699.6 Socioeconomic Profile of Beneficiaries Age 37 41 37 36 38 Sex Masculine 64 71 70 73 69 Feminine 36 29 30 27 31 Family size 5.0 5.0 4.5 4.5 4.5 Education Primary and Secondary 68 72 58 51 64 Bachelor/Technical nk 12 24 26 15 Professional nk 11 1.3 19 16 Without Education 4 5 5 4 5 Occupation Salaried 59 63 62 74 60 Not salaried 41 37 38 26 40 Income of Head of Family 1.9 1.8 2.3 2.5 2.2 Serviced Lots 1.2 nk 2.0 nk 1.7 Housing improvement 1.7 1.5 2.0 2.1 1.8 Starter Homes 2.1 2.1 2.4 2.6 2.5 -k =n In nk =not known  31 APPENDIXES  - 32 - Aopendix A Page 1 of 6 17 de Febrero de 1995 AYUDA MEMORIA BANCO MUNDIAL - FONHAPO SEGUNDO PROYECTO DE VIVIENDA DE INGRESOS BAJOS (3140-ME) I. Introdcn 1.- Una Misi6n del Banco Mundial, integrada por los Sefiores Richard Clifford, Peter Doty, Tony James, Tova Solo y Geoffrey Kirkman visit6 Mdxico durante el perfodo del 13 al 17 de febrero de 1995, para evaluar el avance en la ejecuci6n del prestarno 3140-ME (Segundo Proyecto de Vivienda de Ingresos Bajos). La Misi6n efectu6 reuniones con funcionarios del FONHAPO, SEDESOL, BANOBRAS y la SHCP, y visit6 obras en el Distrito Federal. La Misi6n quiere expresar su agradecimiento a las Autoridades Mexicanas por la excelente cooperaci6n extendida a la Misi6n y por la calidad de los documentos, que en su preparaci6n previa a la visita, facilit6 el trabajo de la misma. A continuaci6n se presentan las conclusiones principales de la Misi6n y los acuerdos logrados. L. Ejecuci6n del Proyecto 2.- Segdn su iltimo informe de avance de la operaci6n del pr6starno (15 de febrero de 1995) FONHAPO ha aprobado cr6ditos por una inversi6n total de 2,312.6 miWlones de nuevos pesos. De estos, el Banco Mundial ha aportado alrededor de 1,116.1 millones de nuevos pesos equivalentes a US$ 350 millones. El proyecto se desarroll6 sobre dos modalidades: Programa Convencional y Programa Especial. Independiente del programa del Banco Mundial, FONHAPO ha producido un total de 320,446 soluciones de vivienda en los ultimos sies ainos, lo cual representa aproximadamente el 48.5% de su meta originalmente programada para el sexenio, de 660,000 soluciones con una inversi6n de 4,000.0 millones de nuevos pesos. 3. Programa convencional. Inversi6n y acciones cumplidas; El programa convencional ha financiado los siguientes sub- proyectos: 37,509 lotes con servicios (21 %), 61,785 viviendas mejoradas (34% de las acciones) y 79,247 viviendas progresivas (60% de las acciones), ademas de 49,175 obras de urbanizaci6n que incluyen un pie de casa. Por otra parte, el prestamo contempl6 35.0 millones de d6lares para financiar creditos retroactivos, que permitieron terminar 17,301 Lotes y Servicios, 8,288 unidades de Vivienda Progresiva y 3,171 de Vivienda Mejorada; lo que da un total de 256,476 acciones financiadas, de las 250,000 identificadas en el proyecto. En cuanto a la inversidn, la mayor se encuentra en vivienda progresiva que representa el 77.6% del total de los ulItimos 6 anos. En lotes con servicios y vivienda mejorada representa el 22.4% equivalente al 88% de la meta total expresada en los indicadores del proyecto. Costos de acciones; El costo promedio de la vivienda progresiva durante los ultimos cuatro anios ha aumentado en el 50% en pesos constantes, comparado con el costo promedio durante los dos  Appendix A - 33 - Page 2 of 6 periodos de cuatro aiios anteriores. Este aumento se puede explicar en parte por los aumentos en el indice de costos de edificaci6n de vivienda de interes social; situaci6n que se ha visto compensada por una mejora en la calidad de los proyectos constructivos preparados por los beneficiarios y que ha dado como producto, conservar y mejorar la habitabilidad de la vivienda financiada. Acreditados; respecto a los acreditados, FONHAPO inform6 que la atenci6n a los beneficiarios finales por conducto de Asociaciones Civiles o a travds de los Organismos Estatales de Vivienda, es indistinto, toda vez que el beneficio del credito llega al beneficiario final; toda vez que la inversi6n total del FONHAPO, desde su creaci6n, ha sido operada en partes iguales 50% y 50%. En el futuro inmediato el FONHAPO operara de conformidad con lo establecido en los acuerdos de coordinaci6n para el Fomento y Desregulaci6n de la Vivienda, publicados en el Diario Oficial de la Federaci6n el 20 de octubre de 1992, situacion que no modifica la operaci6n del credito 3140-ME. 4. Programas especiales: a) El proyecto original asign6 el equivalente de US$ 50 millones a dos programas especiales enfocados hacia la poblaci6n urbana marginada que normalmente no puede acceder a los programas del sector formal. Debido a que las condiciones establecidas en este subprograma de entrada resultaron diffciles para las ciudades objetivo, el Banco Mundial acordd reasignar US$ 30 millones del rubro de programas especiales al programa convencional en diciembre de 1993. En el perfodo han ocurrido dos acontecimientos que han ocasionado un impacto positivo en las mismas poblaciones objetivo de los programas especiales, que son: (i) la aprobaci6n de la enmienda al Artfculo 27 Constitucional; (ii) la implementaci6n del programa de 100 ciudades por SEDESOL. Adicionalmente, en el programna convencional de FONHAPO, se hal aprobado creditos que representan inversiones suficientes para completar la ejecuci6n del prestarno 3140- ME. FONHAPO convino con la Misi6n, la reasignaci6n de los fondos restantes para programas especiales hacia el programa convencional por lo que acordd se solicitarl al BANOBRAS la gesti6n ante el Banco Mundial, de una enmienda al convenio de prestarno, para transferir el total restante de desembolso en el apartado "B" al apartado 'A'. 5. Estudios a) FONHAPO habia presentado anteriormente los tres estudios financiados bajo el prestamo. Cabe senialar que entre las recomendaciones del estudio de normas de construcci6n, ya se ven avances como son: la descentralizaci6n de la operaci6n por parte de FONHAPO, el acuerdo con el Colegio de Notarios Piblcos para reducir los costos de inscripci6n y de establecer un regimen de pago unico, el establecimiento de la ventanilla unica dentro de las oficinas de planeaci6n municipal. Referente al estudio sobre movilizaci6n de ahorro de la poblaci6n objetivo de FONHAPO, la recomendaci6n de iniciar operaciones de ahorro previo ha sido instrumentada a traves del Patronato del Ahorro Nacional. Adicionalmente, algunos bancos comerciales, inspirados por el trabajo de FONHAPO, han instrumentado programas de ahorro popular para captar dichos recursos. Tambien se habia hecho un estudio sobre los asentamientos  Appendix A -34 - Page 3 of 6 irregulares; la Misi6n sugiri6 que ese estudio podria servir a futuro en donde FONHAPO estudia formas de apoyar al sector informal. FONHAPO seU6i6 que SEDESOL, a traves de sus programas de Solidaridad y de 100 Ciudades, esta apoyando la producci6n de lotes con servicios que permitira atender las necesidades habitacionales en forma ordenada de esta poblacidn. Esto ha ocasionado, que la demanda que recibe y atiende FONHAPO, se ha dirigido mas hacia las soluciones de vivienda progresiva y terminada. HI. Evaluaci6n de los Indicadores de Seguimiento 6. Entre los documentos que entreg6 a la Misi6n, FONHAPO present6 informaci6n sobre los indicadores de seguimiento. FONHAPO estA cumpliendo con estos, con la excepci6n del numero de familias, la cifra actual es 178,541 mas la de los retroactivos, comparada con una meta de 250,000. Los puntos a destacar son los siguientes: a) Respecto a la meta de enfocar el 70% de la inversi6n total hacia soluciones de vivienda con un costo menor de 1600 vsm, FONHAPO ha venido actualizando costos, de tal suerte que 1600 vsm de 1990 equivalen en 1992 a 1920 vsm, en 1993 2,041.3 vsm y en 1994 2,136.1 vsm. Segun datos del ultimo aijo, la inversi6n en soluciones por menos de 1920 vsm autorizadas para 1992, alcanz6 el 65% del total, equivalente al 93% de la meta inicialmente programada. La concentraci6n de la inversi6n de FONHAPO se estA haciendo en familias que tienen un ingreso arriba del 70 porcentile de distribuci6n de ingresos de 1990, tomando como base 2.5 vsm, en virtud de que se estA considerando el ingreso familiar. b) Respecto a la relaci6n de las inversiones hechas a traves de grupos sociales y privados versus las entidades piblicas, FONHAPO ha realizado una actuaci6n muy cerca de la meta. Sin embargo, y debido a nuevas formas de relaci6n con los demandantes las tareas del FONHAPO seran individualizadas en estricto apego a su funci6n financiera. c) Respecto al numero de unidades financiadas y al volumen de la inversi6n, lo ejecutado durante los dltimos cuatro anios se ubica entre el 25% y 33% de las metas, en cuanto a acciones y alrededor del 66% en cuanto a la inversi6n prevista en el Programa de Mediano Plazo 1988- 1994. Segu'n la programaci6n para el aiio 1995, esta reducci6n en la actividad de financiar vivienda continuara por lo menos un ano mas. IV. Situacidn Financiera de FONHAPO 7. Los estados financieros preliminares al 31 de Diciembre de 1994, fueron entregados a la Misi6n, comentando que las perdidas operacionales, si bien han disminuido en el ultimo anio, continuan por varias razones: a. Costos de indemnizaciones (N$ 11.2 millones) por la reducci6n de aproximadamente 300 empleados durante 1994.  Appendix A 35 - Page 4 of 6 b. La creaci6n de una provisi6n para creditos dudosos de N$ 99 millones durante los dltimos dos anos, incluyendo N$ 35 millones en 1994. c. Intereses a tasa Cetes sobre el prdstamo con el BIRF por N$ 119 millones. d. El no contabilizar como ingreso el valor de las actualizaciones de saldos por cambios en el salario minimo hasta que dicha actualizaci6n sea cobrada. V. Administraci6n de Cr6ditos 8. La recuperaci6n de la cartera de prestamos ha mejorado levemente desde Junio de 1993, en un 25%, pasando del 8% al 6.3% de la cartera, fecha utilizada en la Ayuda Memoria de la misi6n de Septiembre de 1993. Funcionarios de FONHAPO atribuyen esta mejoria a varias medidas tomadas durante los ultimos 2 anios: especialmente la renegociaci6n de aproximadamente 270 creditos con problemas de recuperaci6n, 220 creditos del sector social y 50 creditos con 9 entidades publicas. La Misi6n fue informada que 7 de las 9 entidades pdblicas estan al dia y aproximadamente la mitad de los creditos del sector social estan pagando satisfactoriamente. Estadisticas de la mora N$ millones Vencida Dic. 94 Jun. 93 Dif. 5-11 cuotas 27.7 25.5 2.2 12 cuotas o mAs 114.2 105.5 8.7 TOTAL 141.9 131.0 10.9 Pr6stamos 2,241 1,635 606 % de cartera 6.3% 8.0% -1.7% Numero de creditos Vencida Dic. 94 Jun. 93 Dif. 5-11 cuotas 103 105 (2) 12cuotaso mAs 147 142 5 TOTAL 250 247 3  Appendix A -36- Page 5 of 6 VI. Reformas Administrativas 9. FONHAPO esta avanzando en la implementaci6n de las reformas administrativas planteadas en el Decreto de Fomento de Vivienda publicado en octubre de 1992. En el tema de la decentralizaci6n, FONHAPO esta trabajando con los Institutos Estatales de Vivienda. Alrededor de 50% de los creditos y 70% de las acciones actualmente provienen de este enlace con los estados y municipios. Por otra parte, FONHAPO ha iniciado la individualizaci6n de los creditos y esta procesando 19,000 creditos individuales de grupos sociales. VTI. Otros Temas 10. Informe Final de Implementaci6n del Proyecto a) Al final del proyecto (30 de junio de 1995) el Banco Mundial y el Gobierno Mexicano deben preparar el Informe Final de Implementaci6n del Proyecto. La Misi6n dej6 un marco de referencia para que BANOBRAS y FONHAPO con letaran las secciones correspondientes. 11. Desembolsos a) Al 15 de febrero de 1995, los desembolsos del prestamo 3140-ME sumaron US$ 343.8 millones mas el saldo de la cuenta especial de 2.7 millones, segun informaci6n proporcionada por BANOBRAS. Tambien, BANOBRAS inform6 a la Mision de la intenci6n de desembolsar totalmente los fondos del prestamo (US$ 350 millones) antes del 30 junio de 1995, fecha de cierre del proyecto. La Misi6n tambien reviso con BANOBRAS los sistemas de control y documentaci6n relacionados con el prestamo y los encontr6 satisfactorios. 12. Licitaciones a) FONHAPO present6 en 1994 al Banco Mundial una Gufa actualizada de Licitaci6n. La Misi6n qued6 de revisar la Guia de nuevo y enviar a la brevedad su autorizaci6n para proceder a su implantaci6n. SEDESOL S. H. C. P BRA  - 37 - Appendix A The Wodd Bank 1918 H St.t, N.W. (2' Page 6 of 6 INTERIFATIONAL aANK FOR RECONSTRUCTION AND DEVELOFPMENT Wasungton, D.C. 20433 Cv * MTERNATnONAL DEVELOPMBENT ASSOCIATION U.S.A. FAX: (202) 676-1821 March 24, 1995 Ing. Arturo Diaz Camacho, Director General FONHAPO Anil 571, 4 Piso Col. Granjas Mexico Delg. Iztacalco Mexico, D.F. 08400 Dear Ing. Diaz I wish to express my appreciation for the excellent support provided to Mr. Richard Clifford and his colleagues during their recent visit to Mexico to carry out with you and other government authorities the supervision of the Second Low Income Housing Project (Loan 3497-ME). We are pleased that the project is proceeding on schedule and is expected to close by June 30, 1995. The mission left an outline of the Implementation Completion Report, a portion of which must be completed by the government. Mr. Geoffrey Kirkman, of the World Bank's Resident Mission in Mexico is available to advise you in the preparation of the document. May I also take this opportunity to remind you to send FONHAPO's 1994 evaluation report, which must be submitted by March 31, 1995. We have received a request from BANOBRAS regarding the reallocation of funds from category B to category A. We will advise you separately of this reallocation once review by the necessary departments within the World Bank has been completed. We are also reviewing FONHAPO's procurement guidelines and will report back to you once this review has been completed. Best wishes, Sincerely, Petei Gyamfi Acting Division Chief Infrastructure and Energy Operations Division Country Department tI Latin America and the Caribbean Region  Appendix B - 38 - Page 1 of 4 REPORTE DE TERNINACION MEXICO SEGUNDO PROYECTO DE VIVIENDA DE BAJOS INGRESOS (Prestamo 3140-ME) Resumen de Evaluaci6n Introducci6n 1. Este prestamo por US$350 millones, el Segundo Proyecto de Vivienda de Bajos Ingresos, inici6 en marzo de 1990. Esta fue la tercera operaci6n del Banco con la cual apoy6 la construcci6n de viviendas y las refonnas en las politicas de vivienda en Mexico. Fue seguido de un proyecto para desarrollar el mercado de vivienda, aprobado en 1992, para expandir el suministro de financiamiento hipotecario y desarrollar politicas y reformas a la regulaci6n para las viviendas de mas bajo costo y mejorar el mercado de vivienda en Mexico. El prestamo 3140-ME concluy6 totalmente su desembolso enjunio de 1995. El costo total del proyecto fue de US$723.3 millones, comparado con la estimaci6n de la evaluaci6n preliminar de US$661.5 millones, de los cuales US$350 millones provinieron del prestamo del Banco. Objetivos del Proyecto 2. El proyecto se orient6 a: (a) incrementar la disponibilidad de creditos de vivienda para familias de bajos ingresos; (b) mejorar el nivel de recuperaci6n de costos del FONHAPO; (c) reorientar los subsidios a los grupos mas pobres; (d) mejorar la eficiencia en los costos de soluciones habitacionales; (e) simplificar los procedimientos administrativos del FONHAPO y sus prestatarios; y (f) contribuir al mejoramiento en la planeaci6n y desarrollo de las areas urbanas. Los objetivos del proyecto no fueron modificados durante la implementaci6n del proyecto, aunque algunos fondos fueron relocalizados del programa especial de inversi6n para la expansi6n urbana progresiva y regularizaci6n y mejoramiento urbano, hacia el programa convencional de inversiones y la definici6n de viviendas de bajo costo. Para el prop6sito de reunir el 70% de los prestamos, fue revisado el limite de cada acci6n de vivienda de 1,600 veces el salario minimo diario (vsmd), definido bajo el prestamo, a 1,742 vsmd en 1991 y 1,920 vsmd en 1992 y subsecuentemente. Los objetivos del proyecto fueron claros, realistas e importantes para el Pais y el sector y para la Estrategia de Asistencia a Paises del Banco, debido a su impacto directo en el bienestar de las familias y su importancia en la politica econ6mica de Mexico. (parrafos 1, 2 y 5).  Appendix B Page 2 of 4 - 39 - Resultados y Experiencias en la Implementaci6n 3. El prestamo fue exitoso al incrementar la disponibilidad de creditos de vivienda para familias de bajos ingresos, financiando 262,806 unidades de vivienda, cifra relativamente mayor que las 250,000 unidades pronosticadas en la evaluaci6n previa. Sin embargo, algunas de las inversiones para 49,175 unidades fueron para infraestructura urbana, incluidas en las viviendas iniciales, pero financiadas en forma previa y por separado. Hubo una reducci6n sustancial en los subsidios alcanzados como una condici6n de efectividad, cuando los subsidios fueron reducidos para todos los prestamos abajo de 1,850 vsmd, los cuales fueron alrededor de US$5,850 al momento de la evaluaci6n previa y fueron eliminados para todos los prestamos por encima de esta cantidad. Sin embargo, el objetivo de metas por tipo de soluciones habitacionales no fue alcanzado porque FONHAPO otorgo mas prestamos para vivienda inicial -conforme a la tendencia hist6rica de la demanda y en respuesta a la demanda presentada- por consiguiente fueron reducidos los prestamos demandados para lotes con servicios y mejoramiento de vivienda, (parrafos 3 4 y 5). 4. El objetivo de distribuci6n de inversiones por area geografica fueron parcialmente alcanzados, porque las metas para ciudades grandes fueron superadas y para ciudades medias parcialmente se alcanzaron, debido a que durante el periodo de implementaci6n del proyecto tuvo lugar un fuerte proceso de urbanizaci6n de la poblaci6n (de las comunidades rurales a las ciudades, debido, entre otros factores, a las modificaciones en la tenencia de la tierra). Los prestamos a traves de instituciones publicas superaron las metas previstas (64% de 60%) y los prestamos a traves de agrupaciones sociales y privadas fueron alcanzadas parcialmente (36% de 40%). Sin embargo, los procedimientos administrativos de FONHAPO fueron modernizados y los sistemas de prestamos y recuperaci6n fueron fortalecido,s. La parte B del proyecto fue parcialmente implementada (50%). Los costos de administraci6n y los niveles de recuperaci6n de prestamos morosos previstos por FONHAPO fueron alcanzados parcialmente. Asimismo, los tres estudios incluidos en el proyecto sobre el ahorro de las familias de bajos ingresos, sobre normas de construcci6n y procedimientos administrativos, y sobre asentamientos irregulares fueron llevados a cabo con oportunidad y se alcanzaron importantes resultados (parrafos 6-10). 5. Los objetivos del proyecto son sostenibles. Hay alcances adicionales en la reducci6n de subsidios a la vivienda. El proyecto identific6 la necesidad de trabajar mas fuertemente con las autoridades locales de vivienda y de fortalecer el ahorro como una condici6n para participar como beneficiario de proyectos FONHAPO (pTrrafos 20 y 21).  Appendix B -40- Page 3 of 4 6. Varios factores afectaron la implementaci6n del proyecto. Mientras las fuentes de financiamiento de FONHAPO durante los anlos de 1990-1994, fueron mejoradas en relacion a las previstas en el contrato de prestamo. Asimismo, mientras la inversi6n en vivienda se increment6 significativamente durante el periodo de implementaci6n del proyecto, 1989-1994 (de 273,000 unidades a 623,000 unidades previstas inicialmente en el programa de mediano plazo del FONHAPO y de US$2.9 billones a US$1L.1 billones), la participaci6n del FONHAPO disminuy6 de 15.6% a 6% de unidades financiadas y de 4.2% a 1.3% del valor de las inversiones de vivienda, -toda vez que la disminuci6n proporcional de recursos fue mayor al de las unidades, se financi6 un mayor nuimero de soluciones habitacionales de menor costo-. Sin embargo, el FONHAPO s6lo financi6 el 39% de las metas previstas inicialmente en su Programa de Mediano Plazo. Esto se debi6 principalmente a que FONHAPO no cont6 con recursos adicionales de otras fuentes de financiamiento y a que durante este periodo, el porcentaje en el costo de las unidades de vivienda se increment6 en 68%, de US$10,580 a US$17,820; mientras los costos de las unidades de vivienda iniciales financiadas por FONHAPO se incrementaron en 48%, un 30% menos. El costo de las viviendas se increment6 mas rapidamente que el salario mninimo; consecuentemente, el Banco estuvo de acuerdo ajustando el indicador de monitoreo. El 20 de octubre de 1992, se public6 en el Diario Oficial de la Federaci6n, los Acuerdos para el Fomento y Desregulacion de la Vivienida, en donde el Gobierno convino con los organismos federales de vivienda (incluido el FONHAPO) y los gobiernos estatales, un programa tendiente a que los organismos federales transfirieran la ejecuci6n en lo material de los programas que financian hacia los organismos locales de vivienda; transformar y fortalecer a los organismos federales (incluido el FONHAPO) en instituciones eminentemente financieras y de fomento; asirnismo, a individualizar la recuperaci6n de creditos otorgados con anterioridad e individualizar los nuevos creditos. Conforme a lo anterior, durante la implementaci6n del proyecto, el FONHAPO inici6 la descentralizaci6n de la operaci6n crediticia hacia los organismos estatales de vivienda y cerro sus oficinas regionales (los organismos estatales de vivienda han sido acreditados del FONHAPO desde la creaci6n del mismo y han acumulado suficiente experiencia), y ajust6 la estructura de personal de sus oficinas centrales de acuerdo con los requerimientos del fortalecimiento de su operaci6n. (parrafos 12,13 y16-19). 7. Durante la implementaci6n del proyecto, debido al incremento en el promedio del costo de la vivienda relativo al salario minimo, el Banco acepto que, con el prop6sito de que el FONHAPO evaluara el exito en relaci6n al 70% del indicador de monitoreo, el costo de una vivienda seria ajustado de 1,600 vsmd a 1,742 vsmd en 1991 y 1,920 vsmd para 1992. FONHAPO de comuin acuerdo con el Banco, transfiri6 una pequenia porci6n de los recursos de los programas especiales incluidos en la parte B del prestamo. Esto fue debido a la dificultad que enfrentaron las autoridades locales para cumplir con las condicionalidades previstas para esta parte (preparar un plan de desarrollo urbano y un programa para regularizaci6n de asentamnientos irregulares -suministro de titulos- requeridos bajo este componente, y las dificultades para obtener una hipoteca sobre la propiedad hasta que un titulo legal fuera obtenido como condici6n para el prestamo) (parrafos 13 y 14).  Appendix B - 41 - Page 4 of 4 Desempenio del Banco y el Prestatario 8. La identificaci6n y evaluaci6n del proyecto fueron satisfactorios, pero el Banco fallo en la no identificaci6n de los riesgos asociados con prestamos a organizaciones del sector social, lo cual haria necesario capacitarlos para manejar adecuadamente las cuentas individuales de los subproyectos, retenciones y subprestamos. Una revisi6n a la tasa econ6mica interna de retomo, calculada para viviendas iniciales y viviendas mejoradas, indica que los beneficios econ6niicos del proyecto excedieron las estimaciones de la evaluaci6n. Para darle continuidad, el Banco asign6 personal capacitado durante la preparaci6n del proyecto, evaluaci6n y supervisi6n, y la supervisi6n fue consistente, el FONHAPO y el personal del Gobierno trabaj6 con personal del Banco en la preparaci6n e implementaci6n. El personal de FONHAPO trabaj6 fuerte en el desarrollo institucional y en su programa de descentralizaci6n y proporcion6 inforrnaci6n sobre el proyecto en el tiempo establecido. La revisi6n de los documentos proporcionados fueron rapidamente revisados durante la implementaci6n del proyecto (parrafos 23-26). Resultados del Proyecto 9. En general, los resultados del proyecto pueden ser considerados bastante satisfactorios. A pesar de que el FONHAPO no alcanz6 sus objetivos prelimninares de su programa de mediano plazo 1989-1994, el niimero y valor de las viviendas financiadas con recursos del Banco excedieron a las estimadas en la evaluaci6n previa, y la tasa econ6mica interna de retorno excedieron por mucho a las estimadas. Los subsidios a la vivienda fueron reducidos de acuerdo a lo planeado. Finalmente, el impacto de los estudios bajo el proyecto parecen haber sido bastante positivos (parrafo 3 1). Resultados y Lecciones Aprendidas 10. La direcci6n de FONHAPO ha rnodernizado su estructura administrativa, fcrtalecido su funci6n financiera, descentralizado su operaci6n, disefiado nuevos sistemas e instrumentos y alentado reformas para un mejor desempenlo. Por lo tanto, en adelante el FONHAPO puede reducir aun mas los subsidios y trabajar mas efectivamente a traves de los institutos estatales de vivienda (parrafo 32 y 33). 11. Parece que la principal fuente del problema durante la implementaci6n del proyecto fue el relativo a la debilidad de las organizaciones sociales a las cuales este presta. FONHAPO tiene y continua fortaleciendo sus capacidades institucionales, y planea prestar mas a traves de los institutos estatales de vivienda sanos y delega mas las funciones administrativas de cobranza de los prestamos a ellos. FONHAPO tambien planea introducir en la selecci6n del beneficiario una capacidad demostrada de ahorro previo como una condici6n para obtener de FONHAPO un credito de vivienda (parrafo 34 y 37).  I   lMAG iNG Report No: 15865 Type: ICR