Colombia”, by Mauricio Cardenas
The present essay is intended to analyze a paper by Mauricio Cardenas entitled “ The securitization of mortgage portfolios in Latin America: The case of Colombia”. In the article the author is elucidating how crisis in the mortgage sector of Columbia was turned into opportunities for the development of the sector. It has five sections in which the first is an introduction to mortgage securitization and the objectives of it. The second part is the history of the mortgage filed in the country and this is followed by details about Titularizadora Colombiana, a company that was set up for developing secondary mortgage market.
The fourth topic is the structure of mortgage securities and finally an analysis on how mortgage securitization could affect the economy of the country. Mortgage securitization intends to connect the growing sector of capital market to housing finance sector so that it would be possible to develop primary as well as secondary market for mortgage and would finally result in housing development of the country. There are seven private banks in the country with largest share of assets being mortgage credits.
The crisis in 1998 to 2000 resulted in reduction of mortgage credit balance considerably and it was mainly because of the increase in the interest rate and loss of clarity on the conditions of mortgage as a result of new rulings from the court. Debtors suffered and relief measures introduced were highly inefficient to solve the problems. The difference in currency for mortgage financing and mortgage portfolio and the short-term nature of the credit added to the problem. At the same time there was another development in the pension sector.
The pension reforms of 1993 resulted in growth of this fund, which could be directed in such a way as to solve the problems in mortgage sector. This resulted in the formation of Titularizadora Colombiana with initiation from both private and public sector. The housing law of 1999 forced the government to create securitization societies that deal with acquisition and securitization of mortgage portfolios. The government also introduced a tax benefit for securities and guarantees for the investors for their investments.
The whole of the private sector also wanted the formation of a single company to deal with only mortgage securities and this resulted in the formation the above company with all the financial and technical support from World Bank. The company with its strict criteria for selection of portfolios emerged out successfully. The mortgage securities consisted of two types of structures VIS and non-VIS credits, of which, VIS credits were guaranteed by the state. In the case of non-VIS credits subordinate securities were issued for additional guarantee.
The investors were given a wide choice for level of risk and period of mortgage. The interest rate on securities was similar to that of government bonds and provided banks with operational benefits. The securities are routed into housing mortgage financing system and would result in the benefit of investors. Thus the investments in pension funds by the households are used for financing mortgage credits. Thus the whole process resulted in the development of housing sector in Columbia.
It is believed that the technology developed by the company would be able to securitize even the overdue portfolios and housing leasing contracts in Colombia. Thus the whole process resulted in the development of housing sector in Colombia with high prospects for the future. Through the article the author could effectively pass the message on how to undertake securitization of mortgage portfolios in such a way as to contribute to the development of housing sector of the country. Questions 1.
What were the conditions existed in Columbia which led to the formation of Titularizadora Colombiana? 2. What were the procedures adopted by the company that resulted in greater enthusiasm for investment among investors that finally led to the success of the company? 3. What are the future prospects in the scenario of securitization of mortgage portfolios in Columbia? Bibliography Colombia securitizes mortgages (2005). [online] Available at: http://www. ifc. org/ifcext/treasury. nsf/attachmentsbytitle/mh_awards_best+local+market+securitization/$file/2latinfinancenpl.
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com/personal-finance/investing/1064164-1. html(accessed on 11/3/2009) Mortgage Portfolio Analysis Service and Sale Options (2009). [online] Available at: http://www. freddiemac. com/singlefamily/news/pdf/MortgagePortfolioSourcingManualFINAL. pdf(accessed on 11/3/2009) Trotz, R. (2004). Valuation of Mortgage Portfolios for Securitisation Purposes and Property and Market Rating [online] Available at: http://www. ku. edu. tr/files/corporate/Corporate_Valuation_2004_Conference/Handout-Valuation%20of%20Mortgage%20Portfolios. pdf (accessed on 11/3/2009)
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