Securitization' of financial assets has spread throughout the world, from established economies to developing ones. In Latin America, securitization became the new financial instrument and financing alternative during the 1990s. Assets that have been securitized in the region include oil, future flow receivables, electronic remittances, credit card merchant vouchers, and medical equipment leases.2 During the past few years the region has become increasingly focused on developing a market for residential mortgage-backed securitiess (RMBS) due to a number of demographic and economic factors. Latin America, however, has been noticeably absent in one of the most successful segments of the IMAGE FORMULA13
international securitization market-the securitization of commercial mortgages.
The issuance of commercial mortgage backed-securities (CMBS) has exploded in the last ten years. Globally, analysts predict that CMBS issuance will rise twenty percent to approximately $72 billion in 2001 compared to 2000's $60 billion. The U.S. component is expected to grow to $52 billion from $48 billion in 2000. Canada, Europe, and Asia are anticipated to issue as much as $20 billion, up from 2000's $12 billion. These 2001 projections indicate that international deals will account for almost thirty percent of the global CMBS market.4
The focus of this Article will be an analysis of the legislative reforms that impact key legal issues associated with the securitization of mortgages and the emerging secondary mortgage market in Latin America. The goal is to review the changing legal landscape to assess whether these countries are primed to move from the securitization of residential mortgages to the securitization of commercial mortgages.
Two key factors must be in place to make this transition. First, laws governing issues such as the transfer of assets and the perfection of rights to those assets must be enacted. Second, investors must have confidence that the laws will function as enacted. Laws regulating issues such as foreclosure, the ability to transfer or assign rights in mortgages, and the creation of special purpose vehicles (SPVs) will be scrutinized.5 In Latin American jurisdictions, where securitization is still a relatively new process, the courts have not tested many of the existing and newly enacted laws. Both legal foundation and interpretation, therefore, play a significant role in assessing the growth of the CMBS market.
First, this Article will explore the reasons for Latin America's recent emphasis on developing an RMBS market, including the historical constrictions on the capital markets and the expansion of the investor base in the region. Second, this Article will provide a general overview of the securitization process and the legal considerations within this process. Third, the article will review the legislative reforms that have changed entity structure and foreclosure laws. The analysis focuses on Argentina, Brazil, Chile, and Mexico, IMAGE FORMULA15
as these are the markets that present the greatest potential for a substantial volume of mortgage securitizations.6 The Article then examines the impact and future consequences of these legal changes on the mortgage capital markets in the region. The last section of the Article assesses the viability of a CMBS market in Latin America.
I. THE HOUSING MARKET IN LATIN AMERICA AND THE PUSH TOWARDS AN RMBS MARKET
Latin American countries are currently focused on developing an RMBS market. The driving force behind this emphasis on securitization is the severe housing shortage in the region.7
A. Constrictions on Capital Markets
Housing finance traditionally has been unavailable throughout Latin America because of the region's historic experience with inflation, social instability, and currency weakness; these causes IMAGE FORMULA19
have a negative impact on interest rates. …