Columbian MBS Suffers Setback

Colombia's mortgage system suffered a blow last week after the country's highest court ruled against the deferment by mortgage lenders of interest payments on loans. According to a report from Merrill Lynch, the measure will result in a raise of the payments due by borrowers and add to the system's non-performing loan levels.

Together with state-owned banks, mortgage banks are among the most vulnerable within Colombia's fragile financial system. The delay in the reduction of interest rates would also tend to prolong the depressed state of the housing sector and of the employment-intensive construction sector.

The court said that the ruling should take effect in July 2000, by which time Congress is charged with devising a new system for mortgage lending. Still, Merrill Lynch expects a negative near-term reaction to this judicial measure.