Case Studies of Secondary Mortgage Markets: Colombia

Housing Finance in Emerging Markets

Policy and Regulatory Issues

Washington, DC · March 10-13, 2003

Mortgage disbursements, Construction GDP and Total GDP: Cyclical components

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%

1977

:1

1979

:1

1981

:1

1983

:1

1985

:1

1987

:1

1989

:1

1991

:1

1993

:1

1995

:1

1997

:1

1999

:1

2001

:1

-5%-4%-3%-2%-1%0%1%2%3%4%5%

Disbursements of Mortgage Loan

Total GDP

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%

-40%

-30%

-20%

-10%

0%

10%

20%

30%Disbursements of Mortgage Loan

Construction GDP

COLOMBIAN MORTGAGE SECTOR

Disbursements of mortgage loans

0

50

100

150

200

250

300

350

400

450

Mar

-73

Mar

-74

Mar

-75

Mar

-76

Mar

-77

Mar

-78

Mar

-79

Mar

-80

Mar

-81

Mar

-82

Mar

-83

Mar

-84

Mar

-85

Mar

-86

Mar

-87

Mar

-88

Mar

-89

Mar

-90

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Bil

lio

ns

of

1998

pes

os

Outstanding Mortgage Loans as % of GDP and of Total Credit

2%

4%

6%

8%

10%

12%

14%

16%

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

% of GDP % of Total credit

COLOMBIAN MORTGAGE SECTORMortgage Banks

48%

12%

59%

35%

53%

43%

57%

100

200

300

400

500

600

700

800

900

AV VILLAS BANCAFE COLMENA COLPATRIA CONAVI DAVIVIENDA GRANAH

US

$ M

Mortgage Loans % Total assets

Mortgage BanksComposition of Assets

0%

20%

40%

60%

80%

100%

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Ag-

02

Mortgage Loans Other Loans Portfolio Investments Other assets

0%

20%

40%

60%

80%

100%

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Ag

-02

Indexed Liabilities Peso liabilities Other liabilities

Mortgage BanksComposition of Liabilities

0%

20%

40%

60%

80%

100%19

85

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Savings and current account Less than one year More than one year

Mortgage BanksComposition of Deposits

UPAC, UVR and CPI: Monthly percent changes

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Oct

-72

Oct

-73

Oct

-74

Oct

-75

Oct

-76

Oct

-77

Oct

-78

Oct

-79

Oct

-80

Oct

-81

Oct

-82

Oct

-83

Oct

-84

Oct

-85

Oct

-86

Oct

-87

Oct

-88

Oct

-89

Oct

-90

Oct

-91

Oct

-92

Oct

-93

Oct

-94

Oct

-95

Oct

-96

Oct

-97

Oct

-98

Oct

-99

Oct

-00

Oct

-01

% UPAC - UVR% CPI

Non performing mortgage loans(as % of total mortgage loans)

0

5

10

15

20

25D

ic-9

4

Jun

-95

Dic

-95

Jun

-96

Dic

-96

Jun

-97

Dic

-97

Jun

-98

Dic

-98

Jun

-99

Dic

-99

Jun

-00

Dic

-00

Jun

-01

Dic

-01

Jun

-02

% Debt restructuring

Housing Price IndexDeflated by CPI

60

70

80

90

100

110

120

130

140n

ov-8

6

nov

-87

nov

-88

nov

-89

nov

-90

nov

-91

nov

-92

nov

-93

nov

-94

nov

-95

nov

-96

nov

-97

nov

-98

nov

-99

nov

-00

nov

-01

nov

-02

Ap

ril 1

998=

100

IPV DNP BOGOTA IPV DNP MEDELLIN IPV DANE IPV Camacol

Unemployment Rate in the 90´s

5

7

9

11

13

15

17

19

21M

ar-9

0

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

%

SECURITIZATION IN COLOMBIA

Rates

Credit Volume

Housing Demand

Construction Sector

GDP Employment

↑

↑

↑

↑ ↑

Advantages of Securitization

Law 546 of 1999

• Created securitization companies as part of a specialized housing finance system.

• Regulation of securitization process.

• Tax benefit for security's yield (tax free).

• Special government guarantee.

Pension Funds Value as Percentage of GDP

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Pension Funds (mandatory)

Voluntary Pension Funds

Severance Funds

TITULARIZADORA COLOMBIANA

2 Issues US$ Millions

May 2002 215

November 2002 220

Total 435

0%

2%

4%

6%

8%

10%

12%

14%

% Total loans

% of performing loans

9%

12%

435

Titularizadora Colombiana

4.500

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

US

$ M

Total mortgageloan

T.C

Titularizadora Colombiana in the Mortgage Sector

STRUCTURE OF MBS ISSUED

A

B

C

95%

1%

4%

AAA

A

Unrated

Series Rating

Structure of MBSStructure of MBS

Quarters

0

10.000.000

20.000.000

30.000.000

40.000.000

50.000.000

60.000.000

70.000.000

80.000.000

90.000.000

100.000.000

110.000.000

120.000.000

130.000.000

140.000.000

150.000.000

160.000.000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58

UV

R´s

Reserve Fund

Subordinated B bond

15 yr A bond

10 yr A Bond

5 yr A bond

MBS Coupon Rate 7.50%

Expenses: 3.65%

Excess Interest: 0.77%

Ave

rage

inte

rest

rat

e on

sec

uriti

zed

loan

s 1

2.28

%

12.28%

Interest rates and expensesInterest rates and expensesInterest rates and expensesInterest rates and expenses

12.28%

Market Rate 5%

Market Premium: 2.38%

MBS Coupon Rate 7.50%

Expenses 3.65%

Excess Interest: 0.77%

Interest rates and expensesInterest rates and expensesInterest rates and expensesInterest rates and expensesA

vera

ge in

tere

st r

ate

on s

ecur

itize

d lo

ans

12.

28%

2.90%

2.40%2.20%

2.57%

1.94%

0.91%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

5 10 15Maturity

TIPS E-1 TIPS E-2

TES UVR’ SPREAD OVER TIPS

Investors’ share

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Ba

nks

Tru

ste

e/

Sto

ck e

xch

an

ge

ag

en

t

Pe

nsi

on

Fu

nd

s

Re

al S

ect

or

Insu

rers

Co

mm

on

Fu

nd

s

Ind

ivid

ua

ls

Va

lue

F

un

ds

Inve

stm

en

t F

un

ds

com

pa

nie

sC

ap

italiz

atio

n

Tips E-1 Tips E-2

Business PlanBusiness Plan

Mortgage Sector (US$ M) 2002 2003 2004 2005 2006 2007

Mortgage outstanding balance 4.346 4.066 4.048 4.165 4.376 4.637

New Loans 388 468 578 700 803 922

Titularizadora Colombiana 2002 2003 2004 2005 2006 2007

MBS Issuance 435 370 446 517 583 645

Mortgage balance 387 679 1.017 1.282 1.565 1.728

T.C mortgage market share 9% 17% 25% 31% 36% 37%

• Increased banks’ profitability.

• Availability of funds for origination of new loans.

• Affordability of housing loans.

• Development of the capital market.

• Diversification of investment portfolio.

• Minimal government intervention.

Benefits of securitization in the Colombian context