Baltic-American Mortgage Company

MIGA has issued guarantees totaling $10.1 million to Baltic American Mortgage Holdings (BaMO), LLC, of the United States, covering an equity investment in its wholly owned subsidiary Baltic American Mortgage Company (BaMC). The coverage, which is up to 20 years, protects against transfer restriction and expropriation risks. The guarantees also protect the Baltic-American Mortgage Trust 2004-1, covering 18 months of interest of a portfolio of mortgages under a mortgage-backed securitization. That coverage is up to 20 years and protects against transfer restriction and expropriation of funds.

The project’s mortgage-backed securitization aims to expand BaMO’s mortgage lending program in Latvia. It is the company’s first issue under a $360 million securitization program in the Baltic States. BaMC is the originator and “servicer” of the mortgage portfolio. The securitization consists of up to $60 million in financing structured in three tranches: senior notes, subordinated notes, and fully subordinated notes. MIGA’s support was crucial in enhancing by three notches the rating of the senior notes—which account for 92.5 percent of the issue—and thus attracting institutional investors from abroad. The transaction is a joint MIGA-IFC effort.

The project is helping to expand the nascent mortgage market in Latvia by making available additional financial resources for mortgages at more competitive rates. This is particularly important for a country that is experiencing a shortage of affordable housing, and where existing housing is old and in need of repair. And as the first mortgage-backed securitization in Latvia, the project is expected to be a catalyst for the development of the secondary mortgage market, which can significantly increase liquidity in the primary mortgage market, help extend maturities, and reduce the cost of housing finance, making house ownership more affordable. Another expected benefit is that the developing housing market will trigger industrial growth in a series of complementary industries related to construction.

The guarantees complement Latvia’s country assistance strategy, which focuses on housing as one of four principal areas for World Bank Group involvement. The project also reflects MIGA’s continuing efforts to support capital markets and securitizations as alternative sources of foreign direct investment in its member countries.