New law in Mexico allows insurers to provide mortgage insurance

A new law in Mexico allowing insurers to provide mortgage insurance is likely to help position the private sector as the main engine for the housing market.

Two U.S. insurers, AIG United Guaranty Corp. and Genworth Financial Inc. (GNW), are working to get authorization to provide mortgage insurance in Mexico. The legislation, which had already been approved by the lower house of Congress, was passed by the Senate on Tuesday. Since July, only the Federal Mortgage Society, known by its Spanish acronym SHF, has been providing the insurance, which covers a portion of a home loan in the case of default.

Government estimates have said mortgage insurance can knock about a half percentage point off the mortgage rate and result in down payments of under 10%. Mortgage insurance also is viewed as an important part of the development of Mexico's nascent market for mortgage-backed securities because it creates an extra layer of risk coverage.