Colombian MBS: Against All Odds


Colombia's most frequent mortgage-backed issuer, Davivienda, plans to issue another deal around July, after concluding its fifth local transaction earlier this year. The savings and loan institution is proceeding with its securitization program despite difficult conditions.

The lender had waited several months to place the last transaction due to poor economic conditions in Colombia, with interest rates high and investor demand weak; structuring on the $65 million deal had been completed last November (ASRI, 11/16/98, p.6).

The poor economy is also to blame for the delay in setting up the country's first secondary mortgage company with the International Finance Corp., according to Maria del Pilar Galvis, an attorney and advisor to Davivienda in Bogota. That institution was expected to be up and running by the first quarter but has not yet launched.

In addition to difficult market conditions, a change in the mortgage index has created some uncertainty in the market, explained Gustavo Aristizabal, president of Duff & Phelps de Colombia.

The high court in Colombia recently ruled in favor of changing the index on mortgages from the banks' cost of funds to the rate of inflation. As a result of high local interest rates, many borrowers had been unable to pay their mortgages tied to the cost of funds. The loan-to-value ratios on some mortgages had become negative, and by law these bozxrrowers are entitled to return the properties to the lenders and cancel the loans.

DCR has been reviewing the mortgage-backed securities it rates but so far has not seen any real negative impact, Aristizabal said. Nevertheless, the uncertain environment overall has not encouraged MBS issuance this year. - JB