Offering Light-Speed Mortgages to Latin America’s Middle Class: Our Investment in Morgana
Committing to a home loan is daunting no matter the economy and inflation fears in Mexico are making many people reconsider buying a home right now. Customers need a solution that eases their fears and helps them find a home loan they can afford for the long haul. So why hasn’t the process of getting a mortgage not changed to keep in line with modern payment systems, open banking, and marketplace platforms?
The demographic and cultural nuances in Mexico have led to millions of Mexicans seeking home ownership. Every year, over 300 billion pesos are granted in personal mortgage loans to build or buy homes. The growing number of Mexicans of house-buying age and the cultural preference towards owning a house (57 percent of Mexicans own and paid for their home) are all working in favor of this macrotrend continuing into the future.
In order to keep up with this demand, Mexico has relied on both a private sector (mostly banks) and a public sector push. By 2016, the public mortgage financing program for Mexican workers, INFONAVIT, had granted over nine million housing loans, two million of which had been granted in the preceding three years.
With such attractive market features, one would think that the house-buying process would have evolved into a delightful and streamlined experience for all parties involved. Sadly, though, this is nowhere near to being the case.
That’s why our team is placing our bets on Morgana and welcoming them among our portfolio of fintechs in Emerging Markets. The Mexico City-based mortgage matchmaking platform is poised to solve this issue by putting the buyer at the center of the mortgage approval process. But first, to understand the value that Morgana can bring to home buyers and sellers alike, we have to understand the extent and issues prevalent in the mortgage market.
Getting a mortgage in Mexico = getting a massive headache
Starting a mortgage process to buy a home in Mexico involves a high investment on the part of the customer in terms of both their time and money. Getting the loan approved is arduous. This traditionally offline business tends to have highly disconnected processes with many intermediaries and hoops to jump through.
For example, instead of highlighting an incomplete form or a mistake, the applicant’s claim is often simply rejected. So it’s no surprise it can take up to 12 weeks to be approved for a mortgage loan application and that mortgage penetration in the country stands at a mere 9.7 percent. In a red hot market, this often means the buyer’s dream home is long-gone by the time they get approved..
All these points come together to make this an unnecessarily expensive process to the user. Due to how manual the process is in granting a mortgage, a long line of brokers and intermediaries are used that can increase the fees paid by the buyer. Additionally, in cases where a mortgage is rejected by the bank, they may choose to borrow from the government INFONAVIT scheme––which does the lion’s share of government mortgages––in order to secure funding.
This funding is more expensive to borrowers who then pay interest rates of around 12 percent versus the bank’s 9-10 percent, and can take even longer to secure. All of this put together leads to a painful experience for the buyers, and even the sellers in Mexico.
What is Morgana doing about it?
To simplify and expedite this process, Morgana is offering light-speed mortgages to Mexico's middle class. By putting the buyer at the center of the mortgage approval process, Morgana collects data from both the mortgage providers and property level in their mortgage approval process. So when a buyer finds their dream home, all of this information is ready to assess the buyer against the property. This two-sided marketplace approach allows them to offer near-instant quotes on mortgages.
By reducing the time taken to get a mortgage quote, the number of intermediaries in a transaction, and a variety of choice of providers, buyers are able to shop around. This reduces the risk that home buyers will lose the opportunity just because they didn’t have access to capital at the right time.
This puts Morgana in a unique position to serve as the perfect painkiller for both buyers and sellers.
What is the growth potential?
Currently Morgana is offering their product directly to consumers via their website where buyers and sellers get together for a more automated and streamlined process. However, by offering their product as a white-label solution to brokers and iBuyers, they too are able to digitally assess buyers against properties and pre-approve mortgages. Additionally, while Morgana co-founders Cris, Ana, Andres and Fernando’s vision starts in Mexico, the market inefficiency spreads far and wide across LatAm, and the team is perfectly positioned to take advantage of it thanks to their combined experiences and expertise.
Cris brings his LatAm business expertise having previously served as Head of LatAm at Bnext. Ana directed the mortgage division at Scotiabank, the second-largest mortgage bank in Mexico. And Andres and Fernando bring their technical and data expertise. Together they're well equipped to provide access to loans and home ownership in a quick, accessible, and cheaper way than ever before. And while their vision may start in Mexico, the market inefficiency spreads far and wide across LatAm, making a regional expansion for Morgana highly attractive.
With this stellar founding team, and with strong local financial backers in Cometa, we’re confident the team can achieve anything they set their mind to.