Transcript TITULARIZADORA COLOMBIANA (TC)

Global Conference on Housing Finance in Emerging
Markets
MORTGAGE SECURITIZATION IN COLOMBIA:
KEY ASPECTS AND DEVELOPMENT
ALBERTO GUTIERREZ
Washington, DC, March 2006
CONTENT
1. The Colombian Mortgage Sector
2. Titularizadora Colombiana (TC)
3. Lessons from the Colombian Experience
GENERAL INFORMATION
COLOMBIA:
Mortgage Loans / GDP
60%
• Population
46 Million
• GDP per capita
US$ 2,100
• Annual Inflation
5.0%
50%
40%
30%
20%
10%
0%
USA
EU
Asia Colombia Latin
America
Source: European Mortgage Federation, Federal Reserve
HOUSING FINANCE EVOLUTION
1970-2000: Specialized Mortgage Banks: CAVs (7)
Funding: Short term deposits
Market Risk
Primary Market Experience
Initial Securitizations (95/99): USD 500 million
Individual / Trust / Low Standardization / High Cost
Crisis 97/02
2000: New Housing Law
CAVs turn into banks
Loans in units (UVR) linked to inflation
Incentives to Capital Markets funding
Creation of Securitization Companies
MORTGAGE SECTOR CRISIS 1997-2002
Main Causes:
Mortgage Loans 90 days delinquency rate
- GDP Contraction
25%
- High Interest Rates
20%
- High Unemployment
15%
- Fall in House Prices
- Legal Framework
10%
5%
Jul-03
Ene-03
Jul-02
Ene-02
Jul-01
Ene-01
Jul-00
Ene-00
Jul-99
Ene-99
Jul-98
Ene-98
Jul-97
Ene-97
Jul-96
Ene-96
Jul-95
Instability
Ene-95
0%
MORTGAGE SECTOR AND MORTGAGE
LOANS
Mortgage Loans Features
Current Mortgage Sector
 Denomination: UVR(Real Value Units)
 Entities: 7 Mortgage Banks
 Interest Rate : UVR + 12%
 Mortgage Loans:US$6.000
 Term : 15 - 20 years
millions (US$12.000 M)
 Amortization System: Monthly
 Actual Loans: 800,000
 Annual Loans:100,000 (Av )
Fixed Payments (UVR)
 Financing Maximum : 80%
CONTENT
1. The Colombian Mortgage Sector
2. Titularizadora Colombiana (TC)
3. Lessons from the Colombian Experience
TITULARIZADORA COLOMBIANA (TC)
•
Origin:
Housing Law 1999
- Specialized Entities
- Mortgage Securitization Regulation
•
Objectives:
Resources for housing from Capital Markets
Lower Risks for the System
•
Rules:
Capital Requirements: Similar to Banks (US$25 Mill)
SPV: Universalidad
Supervision: Finance Superintendence
Temporary Income Tax Exemption for Securities
Stockholders: 5 Private Mortgage Banks + IFC
Mortgage Securitization Structure
Titularizadora Colombiana
- Purchase Loans
- RMBS Structure
- RMBS Placement
- Run the Process
Originators (Banks)
- Originate
- Sell Loans
- Loans servicing
Universalidad (SPV)
- Loans (Assets)
- RMBS(Liabilities )
Títulos
Hipotecarios
( MBS)
Credit Enhancements
- IFC
- Government Guarantee on RMBS
backed on Social Housing Loans
- Titularizadora Colombiana
Market
- Investors
- Originators
- Titularizadora
TC ACTIVITIES
• Selection of Originators and Servicers:
Standards and Qualification
• Mortgage Loans Eligibility Criteria: Scoring
• Structuring and Placement of RMBS:
Statistics and Models
• Administration of the Securitization Process
Loans Servicing Supervision
Payments
Information to the Market
• Credit Enhancement Provider
TRANSACTIONS SUMMARY 2002-2005
Number
Number of
Loans
Loans Value
Performing Loans
(TIPS)
7
150,000
1,300
Non Performing
Loans (TECH)
3
42,000
450
TOTAL
10
192,000
1,750
Issuances
USD million
 Securitized Loans: 30 % of Total Mortgage Loans
 Largest Private Issuer in Colombia
PERFORMING RMBS: TIPS
• Loans Features:
- At least 12 months since originated
- Minimum Scoring
• TIPS standard structure: www.titularizadora.com
- Based on Loans Features and Investors needs
- Simple
- Standard
- UVR (Inflation)
- Terms: 5, 10 and 15 years (local AAA)
- Prepayment Risk: Investors
• Credit enhancements:
- Reserve Fund
- Subordinated Bonds
- Liquidity Facility (IFC-TC) - Guarantees: Government
TIPS STRUCTURE
BANK´S N LOANS
BANK´S 1 LOANS
• Conditions
FILTER
• Scoring
U
N
I
V
E
R
S
A
L
I
D
A
D
5 years
No VIS Loans
70%
TIPS A
AAA
10 years
15 years
Social Housing
(VIS) Loans
30%
Subordinated B (15 years) TC
Subordinated Mz (15 años)
IFC Guarantee - No VIS
Government Guarantee VIS
TIPS INTEREST RATES
TIPS Average Interest Rate
(UVR denominated)
TIPS Yield Curves
8%
8%
7.38%
7%
7%
6%
5%
4%
3%
6.04%
5.90%
5.40%
4.50%
4.32%
4.00%
3.85%
3.49%
3.39%
3.88%
5.99%
5.45%
5.05%
4.48%
4.98%
4.39%
6%
4.8%
5%
4%
4.2%
4.8%
3.87%
3.49%
2.50%
2%
1%
0%
0%
10
E1
E6
E2
E7
15
E3
3.6%
2%
1.69%
5
3.8%
3%
1%
Issues
5.4%
E4
E5
2.2%
E-1
E-2
E-3
E-4
E-5
E-6
E-7
TIPS INVESTORS
Average Investors Distribution
Insurance
Other
Industrial Companies
6%
Sector
4%
7%
Pension
Funds
5%
Investment
Funds
18%
Financial
Institutions
60%
NPL SECURITIZATION - TECH
• Loans Characteristics: 6 months minimum delinquency
38 months average delinquency
Foreclosure legal proceeding
• TECH Structure: www.titularizadora.com
• Cash flow origin: recovery and selling of houses
• Statistical Base: 25,000 foreclosure processes (2000-2003)
• Tranches: 5 and 7 years
(local AAA)
• Credit Enhancements:
- Reserve Fund
- Subordinated Bonds
- Liquidity Facility (IFC and TC)
- Overcollateralization
• Transaction Benefits:
Room for performing loans securitizations
Market Risk Mitigation
Liquidity
• Latin Finance Award: Best Local Market Securitization LA 2004
Sep-05
Ene-05
May-04
Sep-03
Ene-03
May-02
Sep-01
Ene-01
May-00
Sep-99
Ene-99
May-98
Sep-97
Ene-97
May-96
Sep-95
Ene-95
NPL SECURITIZATION EFFECT
Mortgage Loans 90 days delinquency rate
25%
20%
15%
10%
5%
0%
TITULARIZADORA´S FUTURE
CHALLENGES
• Securitization of newly disbursed loans
Origination Scoring (standard)
New Originators
• Develop Fixed-Rate Loans: Securitization (30% of
loans)
• Higher Standardization in the Mortgage Sector
• Development of the RMBS Secondary Market
• Securitization of Low Income Mortgage Loans
(Informal sectors and low amount loans).
• Securitization without Tax Benefit
• Reach 40% of Total Mortgage Loans (5 years)
CONTENT
1. The Colombian Mortgage Sector
2. Titularizadora Colombiana (TC)
3. Lessons from the Colombian Experience
EMERGING MARKETS FEATURES
• Low Income
• Macroeconomic Instability:
• Legal Instability
• Low Development in Long Term Financing: Mortgage Loans
• Low Development of Capital Markets
• Weak Risk Management in Financial Sector
• Political Instability
COLOMBIA: SECURITIZATION KEY
ASPECTS
Primary Mortgage Market Development
• Experience in origination and servicing
- 7 mortgage banks
- 30 years (Crisis)
• Stock of mortgages available: 13% of GDP
• Some mortgage standardization
- Amortization systems by Law
• Historical data: 1.2 million loans – 10 years history
COLOMBIA: SECURITIZATION KEY
ASPECTS (Cont.)
Basic Legal Framework
• Specialized Securitization Companies
• New SPV: Universalidad (Mortgages)
• Simple procedure for mortgages loans assignment
• True Sale definition
• Adjustment of Accounting and Tax Rules
Capital Markets
• Development of long term and fixed rate assets:
Public Debt (15 years)
• Long Term investors: Funds, insurance companies, etc.
• Market confidence in RMBS: Information and
understanding
• RMBS Valuation Rules (Marked to market)
COLOMBIA: SECURITIZATION KEY
ASPECTS (Cont.)
Mortgage Banks Motivation
• Mortgage Crisis (Market Risk)
• Profitable Operation
- RMBS Rates + Transaction Costs < Short Term Rates + Market Risk
- Yield curve structure
- Tax benefits
• Alternative Funding Sources
• Change in Mortgage banks structure: margin for fees
PUBLIC DEBT YIELD CURVE
Colombian Local
Public
TES Yield
CurveDebt Yield Curve
25%
20.5%
2001
20%
10%
15%
10%
10.5%
2006
6.6%
1.6%
5%
5%
0%
90 days
1
2
3
4
5
COLOMBIA: SECURITIZATION KEY
ASPECTS (Cont.)
Government Support
• RMBS Regulation
General Regulation
Adjustments to existing Rules
• Financial Incentives:
Tax Benefit for RMBS
Guarantee for RMBS backed by Social Housing Loans
BENEFITS GENERATED BY MORTGAGE
SECURITIZATION IN COLOMBIA
• Additional Resources for Housing: USD 1,700 million
• Reduction of Mortgage Loans Interest Rates: 600 bps
• Market Risk reduction for entities: 30%
• Lower Capital Requirements (Higher Solvency)
• Mortgage Loans Standardization – Best Practices
- Mortgage Loans documentation
- Real Estate Appraisal
- Servicing, Collection and Foreclosure
• Capital Markets Development
• Future Benefits:
Higher competition in the mortgage market: new originators
Higher Stability for the Mortgage Sector
Specialized Originators and Servicers
SPECIALIZED SECURITIZATION
COMPANY
• Coordinate and Lead the securitization process:
Emerging Economies
• Lead adjustments to the mortgage securitization
legal framework
• Promote Market Standardization
• Transparency and Market Confidence
• Lower costs due to economies of scale
FINAL CONCLUSIONS
• Mortgage Securitization: important benefits
• Instability of Emerging economies: Limitations
• Feasible in Emerging Economies. Requirements:
• Mortgage primary market
- Minimum Standardization and information
• Adequate Legal framework
• Minimum Capital Markets
• Government Support
• Development according to local market features
• Specialized Securitization Company: Lead process
Contact Information
Alberto Gutierrez Bernal – President:
[email protected]
Address: Carrera 9 A No.99-02 Of. 702 (Bogotá)
Phone: 57-1 6183030 – Fax: 57-1 6183018
THANKS !!!