Instead, 18 days after walking into the sales office at Los Heroes, a huge, low-income housing development here in this gritty distant suburb of Mexico City, they were holding the keys to a US25,000, 668.5square-foot house, giddy at the ease of it all.

The couple had been unable to think about moving into their own place until Zacarias, a sales agent at a snack company owned by Pepsico, recently won a promotion. With a salary of about US900 a month, he qualified for a 30-year loan from a government housing fund at an interest rate of 9 percentage points over the inflation rate, which is now almost 13 percent. While rates on conventional bank loans are only a couple of percentage points above inflation, Zacarias' income is too low to qualify. Moreover, banks require a deposit of up to 40 percent, which the Zacariases could not amass.

Developments like Los Heroes are rising all over Mexico, part of President Vicente Fox's ambitious plan to provide low-income housing in a country where many newlyweds start out living in a concrete-block room attached to their parents' house.

At the beginning of his term, Fox said he wanted to increase the number of mortgages granted each year of his administration to 750,000 in 2006, up from 350,000 in 2000. The vast majority of those will come from government-backed plans intended for working-class Mexicans. Loans from banks and specialized mortgage companies are mostly going to the significantly smaller middle-class market.

Unlike Fox's failed plans for dramatic overhauls in Mexico's tax structure and its state-owned energy industry, which have been strangled in an oppositioncontrolled legislature, his housing program is on track to reach its goal.

"I have never seen a housing plan such as the one in Mexico," said Marcelo Telles, a construction analyst at Credit Suisse First Boston in Mexico City. "It's a unique model that has been extremely successful." As the plan's different pieces both private and public have coalesced, the program has flourished, buttressed by a stable economy with declining inflation and interest rates.

FINDING THE BALANCE

"Somehow, governments have to balance the interests between social demand and financial sustainability," said Anna Wellenstein, a World Bank official who has been following the program. "They are getting that balance." A new director at the main government housing agency, Infonavit, pushed a decade-long modernization drive into high gear to speed up lending and reach more working-class families. In Congress, political parties have put aside their wrangling to agree on measures to encourage housing construction and finance.

In the financial markets, Infonavit and private lenders have sold about 400 million in mortgage-backed securities, pools of loans packaged into a long-term bond. Although these instruments, which allow lenders to sell loans and grant new ones with the money they raise, are common in the United States, the first in Mexico was not packaged and sold until just over a year ago.

The vigor in the industry is finally attracting commercial banks, which abandoned the mortgage business in 1995 after the peso collapsed and now lend mostly to the wealthy.

Specialized mortgage lenders had stepped into the breach, working with government funds. Now, as the banks look for a way to expand from their tiny sliver of the market, they are buying these lenders along with their expertise in administering loans to middle- and working-class customers and signing on to co-financing programs with Infonavit.

BBVA Bancomer, Mexico's largest bank and a unit of BBVA of Spain, spent 375 million in September for the country's largest finance company, Hipotecaria Nacional. Scotiabank of Canada is buying 80 percent of another big mortgage lender, Casa y Credito, for an undisclosed amount.

The goal of 750,000 mortgages barely keeps up with the number of new households formed each year, according to government figures. And it does not even come close to the estimated 4 million homes needed for families who now live in shanties.

Manuel Campos, the chief financial officer of Su Casita, a mortgage finance company that has been among the most innovative in tapping the markets for financing, wants to speed up the pace further and reach more poor families.

"We should be granting a million mortgages a year, not half a million, and that's the next challenge," he said. "The loans we are giving today are the easy loans." Still, the housing plan is already making an enduring mark on the country's landscape, in rows upon rows of small, pastelcolored, two-story row houses with four rooms each on the farflung outskirts of Mexico's cities. These giant developments are the creation of half a dozen large home-building companies that take charge from the time they acquire the land and qualify to sell their houses with government loans to the moment they hand over the keys "We are laying the groundwork for a new middle class," said Selene Avalos, the chief financial officer at Urbi, a homebuilder based in the border city of Mexicali. "We are creating communities that will be here for the next 50 years." The homebuilders even smooth the mortgage application process, said Enrique Vainer, the chief executive of Grupo Sadasi, which is building Los Heroes. "We handle all the paperwork so the worker doesn't lose time and have to take days off work." After two years of construction, all but a few hundred of Los Heroes' 18,600 houses are finished. The development is dotted with three dozen neighborhood parks and as many sports areas. There are 15 schools, a police station, two day care centers, a clinic, and an indoor gym. At one edge sits a discount supermarket owned by the Mexican subsidiary of Wal-Mart Stores.

But the realities of workingclass Mexico, where everybody needs to make extra cash, quickly intrude on the development's showpiece streets.

INFORMAL ECONOMY

Informal home businesses are prohibited, but houses on almost every street sport signs: hair salon, shoe repair, tamales. At many corners, a blue tarpaulin over a driveway shades a makeshift grill and some plastic chairs: the ubiquitous Mexican quesadilla stand.

Most of the families in Los Heroes have bought their houses with a mortgage from Infonavit. Four years ago, Fox appointed Victor Manuel Borras, a former banker, to head the agency, once a black hole of political patronage. Borras arrived 10 years into a slow-motion overhaul.

"We had problems of bad loans and financial solvency," Borras said. "We needed to gain the confidence of the financial system." The goal is to grant 2 million mortgages during the six years of Fox's administration. So far, 1.3 million loans have been made.

Infonavit is financed by a 5 percent payroll tax employers pay into a special account for each worker along with collections on 2.1 million loans.

Borras cut the rate of bad loans to 9.8 percent from 23 percent, and collections on loans rose to 52 percent of the agency's income from 40 percent. Infonavit sold two mortgage-backed securities this year adding up to about 180 million.

CREATIVE LENDING

Borras has also tried to be creative in lending to reach above and below the agency's traditional working-class customers. A new program, for example, allows workers who earn most of their income in tips to qualify for a mortgage. That allowed Grupo Sadasi to sell one of its houses in Cancun in November to the doorman of the beachside Ritz-Carlton Hotel.

For lower-middle-class workers, those who earn US850 to US1,200 a month, Borras is enlisting the banks' help in programs for co-financing to top off the size of the mortgage beyond Infonavit's levels. With Infonavit, mortgage payments are deducted from a worker's paycheck, and the bank piggybacks onto that.

One of Borras' hardest tasks will be to find a way to give mortgages to poorer workers. The majority of workers with Infonavit accounts earn less than 550 a month and cannot afford more than a US14,000 mortgage.

"We have convinced the developers that this is good business," said Borras, who is working with state governments to apply anti-poverty funds to subsidized mortgages. He hopes to end the year with 90,000 mortgages for poorer workers like supermarket employees and assembly line workers.

The four-year-old Federal Mortgage Society, meanwhile, is creating a system of guarantees to stimulate the nascent market in mortgage-backed securities. "Our mission is to make a private mortgage market," said Guillermo Babatz, the agency's director. "It is much more solid if the private sector does it." Unlike Fannie Mae, which buys mortgages from lenders and issues its own mortgage-backed securities, the agency offers insurance to mortgage lenders and design guarantees for mortgage-backed securities.