WORLD BANK FINANCE FORUM 2002

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WORLD BANKFINANCE FORUM 2002

• Chantilly, Virginia USA
• June 19, 2002

Presentation By Pamela Lamoreaux - IFC Head
Housing Finance Group Global Financial Markets
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TODAYS PRESENTATION

• Importance of Housing Finance
• Linkage Between Policy and Product
• Where Has it Worked Colombia Experience
• Role of IFC
• Where Do We Go From Here?

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Role of Housing Finance/Capital Markets
There is no dispute that housing finance and
capital markets have tremendous development
impact GLOBALLY.

• SOCIAL STABILITY
• Enables households to purchase an asset which
  will represent their largest single investment.
• Personal residences account for 75-90 of
  household wealth worldwide, which amounts to 3 to
  6 times their annual income.
• Housing represents 40 of the monthly expenditure
  of households worldwide.

• ECONOMIC DEVELOPMENT
• Investment in housing accounts for 15-35 of
  aggregate investment worldwide.
• Housing finance supports a successful economic
  sector, and frees personal savings which can be
  invested in small businesses.
• Residential construction accounts for 5 of labor
  force worldwide, while real estate services
  (including finance) constitutes 4 of labor force
  worldwide.

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FORWARD AND BACKWARD LINKAGES
PRODUCTS
POLICY
HOUSING

• Active Construction Industry
• Primary mortgage lending
• Secondary markets
• Securitization
• Bond Market Development
• Rehab/Improvement Loans
• SME Lending
• Technology
• Peripheral Services (credit
• Bureau, title insurance,
• Appraisal, tax services)

• Land Reform/Usage
• Title/Lien Registration
• Taxation
• Transfer of Ownership
• Foreclosure/Bankruptcy
• Subsidies/Incentives
• Legal Framework (Real Estate,
• Banking, Trust, Securitization)
• Corporate Governance
• Supervision/Regulatory Oversight
• Infrastructure (water, electricity,
• Sewer)

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Size of Mortgage Banking Operations
COLOMBIA EXPERIENCE
Total Mortgage Credit
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Mortgage Banking
COLOMBIA EXPERIENCE
7
Mortgage Banking
COLOMBIA EXPERIENCE
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Benefits of Secondary Market
COLOMBIA EXPERIENCE
Colombian Mortgage Banks Assets
LONGER-TERM (MARKETS)
SHORT-TERM (FINANCIAL SECTOR)

• Reduced balance sheet mismatch risk (UVR vs. DTF)
• More efficient use of capital
• Sharing or risks (credit, prepayment)
• Marketability of assets (liquidity)
• Increased servicing income
• Tax benefit
• Standardization of products, origination and
  servicing guidelines

• Increased mortgage lending (use of proceeds for
  lending vs. hold in portfolio)
• Lower mortgage rates to consumers (competition)
• Provide credit enhancements to market (guaranty)
• Ability to develop new non-UVR products
• More domestic and international interest from
  variety of investors (pension funds, life
  insurance, financial, retail)

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POLICY ISSUES - HITOS
ROLES OF THE GOVERNMENT
CREATION CORPORATE GOVERNANCE FINANCIAL/ BUSINESS CAPITAL MARKETS
Sponsored TA (Fannie Mae) with input from World Bank to help determine appropriate capital adequacy and oversight guidelines for Colombia Supervalores as regulator will monitor capital adequacy and manage risks of corporation TA provided by World Bank and others Fogafin guarantee program May offer public sector loans for sale to Hitos May be able to use Hitos MBS backed by social housing to meet 25 of origination guideline With input from World Bank and others implemented comprehensive Capital Market Law Appoint advisor to Board to represent various investors Anticipate favorable risk weighting for MBS May be eligible for repo program
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COLOMBIA EXPERIENCE
IMPACT OF HITOS
Business Plan (US M)
2002
2003
2004
2005
2006
Mortgage sector
Outstanding Balance of Residential Mortgages
5,550 5,478 5,417 5,365 5,321
New Loans 313
420 524 605 699
Titularizadora Colombiana
Mortgage Balance 435
417 500 577 649 MBS
Issuance 435
417 500 462 519 Portfolio
0 0
0 115 130 TC
Mortgage Market Share 8 14
22 30 38
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FIRST ISSUANCE TIPS E-1

• The first issue of the Titularizadora Colombiana
  Hitos was made on May 2, 2002.
• The originator banks were Davivienda, Colpatria,
  Granahorrar
• The total issue size was about UVR 3.8 billion,
  or 215 million
• A senior class of bonds (Class A), in three
  tranches of varying maturities, 5, 10 and 15
  years
• A subordinated class of bonds (Class B).
• The Class A bonds and the Class B bonds were
  rated AAA and A respectively, by Duff
  Phelps Colombia.

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FIRST ISSUANCE TIPS E-1

• The issue involved the securitization of two
  types of mortgage loans rated as high quality
  performing loans
• (i) Social housing loans (subsidized loans) 27
• (ii) Non-social housing loans (non subsidized
  loans) 73.
• In addition the structure included two kinds of
  guarantees
• (i) A Colombian Government direct guarantee on
  the securities issued based on social housing
  loans
• (ii) An IFC credit enhancement facility in the
  form of a local currency partial guarantee to the
  Class A bonds.

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FIRST ISSUANCE TIPS E-1

• The MBS issue of the Hitos was a complete success
  in the market.

  Million USD Million USD Million USD
Serie A Total Demand Total Issuance Cover Ratio
2007 217.6 25,9 8.38
2012 197,1 22,4 8.78
2017 52,1 4,07 12.81
Total 466,9 52,4 8.90
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COLOMBIA EXPERIENCE
Challenges Ahead

• Political risks (change of mortgage laws,
  terrorism)
• Unstable macroeconomic environment
• Increased levels of mortgage lending or creation
  of new specialized lending institutions
  (competition)
• Untested foreclosure laws (some pending civil
  suits) that could prove to be problematic for
  Hitos
• Investor education
• Inability to develop active secondary trading of
  MBS, continues to be swap and hold (not in line
  with government expectations for growth of
  markets)
• Regulator could establish regulatory guidelines
  (capital adequacy, liquidity ratios etc.) which
  inhibit business
• Regulator could establish oversight regime that
  is intrusive and provides too much information to
  markets

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HOUSING THE WORLD
GLOBAL ROLES FOR IFC
FUNCTIONING HOUSING FINANCE SYSTEM
EQUITY
LOANS
WAREHOUSE LINES
GUARANTEE
TRAINING
TECHNICAL ASSISTANCE
STRUCTURING TRANSACTIONS
ASSESSMENT OF MARKETS
FUNCTIONING CAPITAL MARKET SYSTEM
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Where have we helped?
CURRENT HOUSING FINANCE PROJECTS
Secondary Market Institutions Primary Market Institutions On-Lending Capital Market or Structured Finance
Argentina BACS Colombia Hitos Korea KoMoCo West Bank/Gaza PMHC Caribbean - ECHMB Argentina - BHN Bangladesh Delta BRAC China Advantage China India HDFC, Sundarem, TATA Mexico General Hipotecaria, Su Casita Korea Primary Market Corporation Pakistan IHFL Senegal BHS South Africa South Africa Home Loans (SAHL) Sri Lanka NDB Bulgaria - BACB Estonia Eesti Uhispank Russia Delta Credit Lebanon Librano Francaise, Bylblos Bank, Fransabank, BBAC Brazil MSF Holdings India NIIT and NHB, , Korea -SOGEKO, KoMoCo, KDLC South Africa Kiwane and SAHL Turkey-Garanti Leasing
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WHERE DO WE GO FROM HERE?
DEVELOP STRATEGY
COUNTRY ASSESSMENT
LEVERAGE RESOURCES