Omar Ramírez, a handsome gentleman in his late 30s, greeted me. He took me to his office and pulled out a fat three-ring binder. He proceeded to give me an autofinanciamiento overview.
“Usually, this explanation takes around 90 minutes,” he said in a soft, low voice. “But I’ll try to make it faster.”
On the office stereo Rick James began to sing “Super Freak.” Ramírez opened the blue binder to page one. Pointing to a diagram of many boxes and arrows, he said, “First, let me explain the government agencies that regulate us.” Two hours later Gloria Gaynor was singing “I Will Survive” and autofinanciamiento was only a little clearer in my mind. Still, I had a general idea of how the process worked:
Since Mexican banks had for some time been unable to offer reasonable loans, lenders like Habiplan stepped in to meet this need. Headquartered in Mexicali, with offices throughout Mexico, Habiplan is regulated by a half-dozen government agencies. What Habiplan does is amass groups of 500 clients who want 15-year loans of between $35,000 and $60,000. Once a group is formed, the clients begin depositing the equivalent of their monthly mortgage payments, calculated at a 6 percent annual rate, into a trust account held by a major Mexican bank. Clients may obtain their loans in two ways. They must earn 2000 “payment points” in a system that awards points for on-time and early payments (60 points for an on-time payment, 75 points for a payment three days early, etc.), or their name is drawn in a lottery Habiplan holds every quarter for each client group. If a client regularly pays early or on time, it takes around three years for him to obtain his loan. On the other hand, the chances of winning the “loan lottery” would be 1 out of 500 the first time, 1 out of 499 the second time, and so on.
I asked Mr. Ramírez, “Given the unpredictability of the Mexican economy, how many clients drop out of the program?”
“Around 30 percent.”
“They forfeit 25 percent of the money they have in the trust account.”
How else did Habiplan turn a profit?
“Well, we charge a 6 percent annual rate on the mortgage,” he said, reaching for the blue binder. He flipped to a page that contrasted the benefits of borrowing from Habiplan to those of borrowing from other lenders. “Banks, well, you know how high their interest rates are.”
At the very bottom of this page listing the lenders with which Habiplan compared itself, I noticed the word prestamista — a nice way of saying usurero, or “loan shark.” Ramírez must have seen my eyes widen. I explained that American lenders did not, as a rule, compare their services to those of loan sharks.
“As you can see,” he said, “prestamistas charge 6 percent compounded monthly, and in general their loans are only for four years.”
And who borrows from prestamistas?
“People who have no other choice.”
A 6 percent monthly compounded rate is the same as a 101 percent annual rate. In other words, the monthly payment on a $35,000, 4-year prestamista loan would be around $3000. The monthly payment on a $35,000 15-year Habiplan loan would be $295. Other disadvantages of borrowing from a loan shark went without saying.
Still, a 101 percent annual rate looked good when compared to the 150 percent rate Mexican banks charged eight years ago, which is likely why Habiplan lists prestamistas among its competitors — Mexicans remember the ’94 collapse and still mistrust banks. Mexicans also mistrust American journalists trying to find out how Mexicans finance their homes. Last year, a Tijuana realtor gave me the name and phone number of a young woman, a doctor, who was in the process of buying a $250,000 house. I called and left a message on the doctor’s voice mail, and the next afternoon she called me back.
Dispensing with the customary “Buenas tardes,” she asked, “How did you get my name and phone number?”
I explained that her realtor had given me her name and phone number.
“She didn’t tell me that she was going to do that. Who are you and what do you want?”
I said I wanted to talk with Tijuana home buyers about how they financed their homes.
“Look,” the doctor said. “I’m going to have to talk to my husband about this. I’ll call you back.”
She never did.
“The American system is entirely transparent,” said John Osslund, vice president of West Coast Mortgage, a “typical midsize” mortgage brokerage in Mira Mesa. “The process of buying a home, financing the purchase, has been so streamlined and standardized that everyone involved in the transaction knows exactly what’s going on. Everyone knows who the buyer’s borrowing money from, what the terms of the loan are. There are no secrets, no surprises.”
Osslund has worked as a mortgage broker in San Diego for 21 years. He’s known around town as a reasonable guy. Last year, when I spoke with him about American real estate, Osslund was evangelistic.
“In America the home-buying process is efficient because the government promotes homeownership. The government provides tax incentives for homeowners and promotes low-cost loans for first-time buyers. The government does this, in part, because it encourages social stability. For example, it’s now taken for granted that if you want to clean up a neighborhood, decrease crime, foster civic responsibility, you increase the number of homeowners in that neighborhood.
“The reason we can have a culture of homeownership is because the American economy is relatively stable. Banks can offer, for example, 7 percent 30-year mortgages because they’re confident that there won’t be any huge changes in the economy. Inflation plays an important role in their confidence. Lenders want to see a 5 percent return on their investment, so mortgages usually run 5 percent higher than the rate of inflation. So if you say that Mexican banks are offering 24 percent on a 15-year loan, you can pretty much figure that the actual rate of inflation in Mexico, despite the government’s official figure of 9 percent, is significantly higher and that banks aren’t confident in their country’s long-term economic performance.