Colombia

Country Profile

Colombia’s urban home ownership rate equated to 51 percent of households in 2008, of which 12 percent have a mortgage. Colombia’s residential debt to GDP ratio was 3.7 percent in 2008.

The most noteworthy features of the Colombian mortgage market are its RMBS system, their Ahorro savings institutions and the high rate of fixed rate mortgages. As at 2008, 85 percent of mortgage loans were on fixed rate payments, compared to 15 percent that were on variable rates indexed to inflation.

In 2001, five mortgage banks—Bancocolombia, Davividena, BCSC, Colpatria and AV Villas—together with the IFC/World Bank created a specialized securitization company in Colombia, the Titularizadora Colombiana (TC). TC is still the only securitization company in Colombia and is regulated by the Housing Law of 1999. It has capital of $55 million USD, in excess of the minimum capital of $25 million required per the Housing Law. In 2008 it issued 25percent of all private debt issued in the country.

Colombia’s securitization market has gained momentum as Colombia had created an enabling legal and regulatory framework for a healthy mortgage market: there is clear mortgage loan regulation, defined foreclosure processes and clear accounting rules for banks and investors. TC has worked to standardize underwriting practices, uses strict qualification standards for mortgages it purchases (including the family’s ability to pay the mortgage) and shares information with investors in its capacity as master servicer. TC may also provide credit enhancement features such as a reserve fund, over-collateralization and a partial guarantee by the IFC for some of the tranches it sells. In addition, originating banks and TC are required to maintain a stake in the lower rated tranches (subordination), forcing banks to improve their origination and servicing standards. Although observers may believe that Colombia’s high percentage of fixed rate mortgages was also a pre-requisite for creating a securitization market, this is not the case, as demonstrated by Australia, which was the first country to securitize variable rate mortgages.

The Fondo Nacional del Ahorro (FNAs) are financial institutions that receive savings from the public and provide housing loans. They coordinate the whole process of housing delivery including construction, and then provide loans to house buyers.

Another point of note is that the Colombian Central Bank regulates maximum interest rates for both social housing and non-social housing lending. The current maximum rate permitted by the Central Bank is higher than the prevailing market rate, so this regulation has not distorted the market to date.