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Colombia: Rule of Law, Creditor Rights and the Crisis of Housing Finance. Mauricio Cárdenas Alejandro Badel. Outline. Macroeconomic relevance Overview of the mortgage sector Perils of indexation Other causes (and consequences) of the crisis Creditor rights Econometric analysis

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Colombia rule of law creditor rights and the crisis of housing finance

Colombia: Rule of Law, Creditor Rights and the Crisis of Housing Finance

Mauricio Cárdenas

Alejandro Badel


Outline

Outline

  • Macroeconomic relevance

  • Overview of the mortgage sector

  • Perils of indexation

  • Other causes (and consequences) of the crisis

  • Creditor rights

  • Econometric analysis

  • Fiscal costs


Colombia rule of law creditor rights and the crisis of housing finance

Macro relevance


Cyclical components of mortgage disbursements construction gdp and total gdp

Cyclical Components of Mortgage Disbursements, Construction GDP and Total GDP

100%

30%

Disbursements of Mortgage Loan

75%

20%

50%

10%

25%

0%

0%

-10%

-25%

-20%

-50%

-30%

-75%

Construction GDP

-100%

-40%

100%

5%

Disbursements of Mortgage Loan

4%

75%

3%

50%

2%

25%

1%

0%

0%

-1%

-25%

-2%

-50%

-3%

-75%

-4%

Total GDP

-100%

-5%

2001:1

1977:1

1979:1

1981:1

1983:1

1985:1

1987:1

1989:1

1991:1

1993:1

1995:1

1997:1

1999:1


Granger causality between gdp and mortgage origination

Granger Causality between GDP and mortgage origination

Causality

Lags

Sample

Statistic F

Probability

3,583

0,032

2

1977:1 2002:2

GDP Cycle Causes Construction GDP Cycle

0,976

0,381

Construction GDP Cycle Causes GDP Cycle

0,859

0,427

2

1977:1 - 2002:2

GDP Cycle Causes Disbursements of Mortgage Loans Cycle

2,474

0,090

Disbursements of Mortgage Loans Cycle Causes GDP Cycle

3,701

0,028

2

1977:1 - 2002:2

GDP Construction Cycle Causes Disbursements of Mortgage Loans Cycle

3,654

0,030

Disbursements of Mortgage Loans Cycle Causes GDP Construction Cycle

0,050

0,824

1

1990:1 - 2002:2

GDP Cycle Causes GDP Construction Cycle

4,418

0,041

GDP Construction Cycle Causes GDP Cycle

0,008

0,992

2

1990:1 - 2002:2

GDP Cycle Causes Disbursements of Mortgage Loans Cycle

3,222

0,049

Disbursements of Mortgage Loans Cycle Causes GDP Cycle

3,405

0,042

2

1990:1 - 2002:2

GDP Construction Cycle Causes Disbursements of Mortgage Loans Cycle

16,979

0,000

Disbursements of Mortgage Loans Cycle Causes GDP Construction Cycle


Granger causality between cyclical components 1977 2002

Granger Causality between Cyclical Components (1977-2002)

Disbursements of Mortgage Loans

Total GDP

Disbursements of Mortgage Loans

Construction GDP

(all but the 90s)

Total GDP

Construction GDP

(Only the 90s)


Rolling correlation

Rolling Correlation

80%

70%

60%

Construction GDP Cycle

50%

40%

Correlation coefficient*

30%

Total GDP Cycle

20%

10%

0%

-10%

-20%

100%

80%

60%

40%

20%

Correlation coefficient*

0%

-20%

-40%

-60%

2000:4

2001:4

1986:4

1987:4

1988:4

1989:4

1990:4

1991:4

1992:4

1993:4

1994:4

1995:4

1996:4

1997:4

1998:4

1999:4

Correlation with the Disbursements of Mortgage Loans Cycle

Correlation between Total GDP and Construction GDP Cycles

*"Rolling Correlation" using a 10 year window of data


Colombia rule of law creditor rights and the crisis of housing finance

OVERVIEW OF THE

MORTGAGE SECTOR


Mortgage banks in 2002

Mortgage Banks in 2002

900

Mortgage Loans

% Total assets

800

59%

57%

53%

700

48%

43%

600

35%

500

US$ M

400

300

200

12%

100

-

AV VILLAS

BANCAFE

COLMENA

COLPATRIA

CONAVI

DAVIVIENDA

GRANAH


Disbursements of mortgage loans

Disbursements of Mortgage Loans

Billions of 1998 pesos


Outstanding mortgage loans 1998 pesos of gpd and of total credit

Outstanding mortgage loans(1998 pesos, % of GPD, and % of total credit)

18

27%

16

% of Total credit

14

22%

12

10

17%

%

Constant pesos

billions of 1998 pesos

8

12%

6

4

7%

2

% of GDP

2%

0

2000

2001

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999


Non performing mortgage loans as of total mortgage loans

Non-performing mortgage loans(as % of total mortgage loans)

25

20

15

Debt restructuring

%

10

5

0

Dic-97

Dic-98

Dic-99

Dic-01

Dic-00

Dic-96

Dic-94

Dic-95

Jun-02

Jun-97

Jun-98

Jun-99

Jun-00

Jun-95

Jun-96

Jun-01


Mortgage banks composition of assets

Mortgage Banks Composition of Assets

100%

80%

60%

40%

20%

0%

1999

2000

2001

1990

1991

1992

1993

1994

1995

1996

1985

1986

1987

1988

1989

1997

1998

Ag-02

Mortgage Loans

Other Loans

Portfolio Investments

Other assets


Mortgage banks composition of liabilities

Mortgage BanksComposition of Liabilities

100%

80%

60%

40%

20%

0%

2000

2001

1990

1991

1992

1993

1994

1995

1996

1997

1999

1985

1986

1987

1988

1989

1998

Ag-02

Indexed Liabilities

Peso liabilities

Other liabilities


Mortgage banks composition of deposits

Mortgage BanksComposition of Deposits

100%

80%

60%

40%

20%

0%

1990

1991

1992

1993

1994

1995

1996

2001

2002

1989

1997

2000

1985

1986

1987

1988

1998

1999

Savings and current account

Less than one year

More than one year


Summary

Summary

  • Disbursements currently at their historically lowest point.

  • 21.5% of the mortgage portfolio was delinquent by February 2003.

  • Interest rate and maturity mismatch.


Colombia rule of law creditor rights and the crisis of housing finance

The perils of indexation


Yearly growth rates upac and cpi

Yearly Growth Rates: UPAC and CPI

38%

33%

CPI

28%

23%

18%

UPAC

13%

8%

Oct-93

Oct-94

Oct-95

Oct-96

Oct-97

Oct-98

Oct-99

Oct-73

Oct-74

Oct-75

Oct-76

Oct-77

Oct-78

Oct-79

Oct-80

Oct-81

Oct-82

Oct-83

Oct-84

Oct-85

Oct-86

Oct-87

Oct-88

Oct-89

Oct-90

Oct-91

Oct-92


Colombia rule of law creditor rights and the crisis of housing finance

Real UPAC (UPAC / CPI)

100

90

80

Sep. 1972 = 100

Real UPAC

70

New UPAC for “restructured” loans

60

50

Sep-96

Sep-97

Sep-98

Sep-99

Sep-80

Sep-81

Sep-82

Sep-83

Sep-84

Sep-85

Sep-86

Sep-87

Sep-88

Sep-89

Sep-90

Sep-91

Sep-92

Sep-95

Sep-72

Sep-73

Sep-74

Sep-75

Sep-76

Sep-77

Sep-78

Sep-79

Sep-93

Sep-94


Upac uvr and cpi monthly percent changes

UPAC, UVR and CPI: Monthly percent changes

7%

6%

% CPI

% UPAC - UVR

5%

4%

3%

2%

1%

0%

-1%

Oct-98

Oct-99

Oct-00

Oct-01

Oct-82

Oct-83

Oct-84

Oct-85

Oct-86

Oct-87

Oct-88

Oct-89

Oct-90

Oct-91

Oct-92

Oct-93

Oct-94

Oct-97

Oct-72

Oct-73

Oct-74

Oct-75

Oct-76

Oct-77

Oct-78

Oct-79

Oct-80

Oct-81

Oct-95

Oct-96


Colombia rule of law creditor rights and the crisis of housing finance

OTHER CAUSES

(AND CONSEQUENCES)


Housing price index hpi deflated by cpi

Housing Price Index (HPI)Deflated by CPI

140

130

120

110

April 1998=100

100

90

80

70

60

nov-00

nov-01

nov-02

nov-90

nov-91

nov-92

nov-93

nov-94

nov-95

nov-96

nov-97

nov-99

nov-86

nov-87

nov-88

nov-89

nov-98

HPI DNP BOGOTA

HPI DNP MEDELLIN

HPI DANE

HPI Camacol


Unemployment rate observed and simulated

Unemployment rate (observed and simulated)

20%

Unemployment (keeping the December 1997 construction employment constant)

18,0%

Unemployment (keeping the September 95)

17,8%

16,6%

Observed unemployment rate

15%

10%

5%

Mar-01

Mar-02

Mar-94

Mar-95

Mar-96

Mar-97

Mar-98

Mar-99

Mar-90

Mar-91

Mar-92

Mar-93

Mar-00

80.000 employees

196.000 employees

*Unemployment rate in 13 metropolitan areas (Jan 00 – Jun-02) applying growth to seven areas (Mar 90 – Dec 99)


Colombia rule of law creditor rights and the crisis of housing finance

The role of creditor protection


Foreclosure proceedings

Foreclosure Proceedings

Request of embargo and sequestration of assets

Presentation of the

defendants pleadings (10 days)

LAWSUIT

Due Notified to the defendant

(20 days)

No presentation of the defendants pleadings

Order of embargo (30 d) and sequestration (90d)

Acceptance (30 days)

Non acceptance (30 days)

Correction (5 days)

SENTENCE:

-Orders to continue the proceedings of the lawsuit.

-Orders to estimate the price and the sale by auction of the assets under embargo

-Orders to liquidate the credit.

Rejection

(Delay 2 months)

Non corrections

Liquidation of credit and expenses by the defendant if is not done by the plaintiff (10 days and 3 of notice for the plaintiff)

Liquidation of credits and expenses by the plaintiff (10 days and 3 of notice for the defendant)

Definitive Liquidation by the court (It has no dateline)

ESTIMATE OF ASSETS PRICE

Approved by the Judge

Order of sale by auction (No dateline)

(Embargo, sequestration and estimated)

PUBLICATION OF ADS (5 days before the auction)

Sale by auction (1 day)

(BID, AWARD, NO DATELINES FOR BIDDERS)

LEGALIZATION AND DELIVER OF THE ASSET SOLD BY AUCTION


Average time of foreclosure

Average Time of Foreclosure

ICAV (2002)

CEJ (1998)

CSJ (1998)

Normative

time

0

200

400

600

800

1000

1200

1400

1600

# of calendar days


Foreclosure proceedings1

Foreclosure proceedings

130.000

5.300.000

128.316

5.252.000

Number

Balance

5.200.000

124.116

125.000

5.100.000

5.119.104

120.000

5.000.000

Millions of Pesos

4.900.000

114.766

115.000

Number

4.831.195

4.800.000

110.000

4.700.000

105.000

4.600.000

Dic-01

Mar-02

Jun-02


Probability of property being foreclosed

Probability of property being foreclosed

100%

90%

80%

Bank 3

Bank 2

70%

60%

Bank 1

Cumulative probability

50%

40%

30%

20%

10%

0%

0

10

20

30

40

50

60

70

80

90

100

110

120

Months in delinquency


Colombia rule of law creditor rights and the crisis of housing finance

ECONOMETRIC ANALYSIS


Colombia rule of law creditor rights and the crisis of housing finance

Data

Aggregation Level: Individual Loans.

Number of banks: 2.

Scope: Approx. 30% of housing credit.

Sample: January 1994 - June 2002.

Size: 240,350 loans, with an outstanding balance of 2.3 billions pesos (June 2002) and an original balance of 8.8 billions pesos.


Mortgage loans by origination year

Mortgage Loans by Origination Year

%Créditos en

Plazo

Año de

% Saldo

% Número de

% LTV

Altura de

dación de

Original***

Originación

Inicial*

Créditos**

pago

(meses)

% Tasa***

Original***

Mora***

antes de 1980

0,0

0,0

4,5

176,9

8,3

0,24

158,8

1980 - 1984

2,2

1,9

0,4

179,5

6,8

0,38

2,7

1985 - 1989

8,6

10,3

0,4

177,1

6,8

0,48

1,8

1990 - 1992

6,2

5,8

0,6

178,1

9,0

0,45

1,6

1993 - 1994

13,2

13,0

1,1

177,8

9,7

0,53

1,5

1995 - 1996

20,7

16,3

4,4

179,3

12,4

0,51

2,1

1997 - 1998

29,3

26,4

5,2

175,5

13,0

0,52

2,3

1999 - 2000

17,0

21,2

3,1

172,6

12,1

0,55

1,7

2001 - 2002

1,9

3,2

0,0

162,3

11,9

0,52

0,3

2002

0,9

1,8

0,0

163,6

11,9

0,55

0,0

Total

100,0

100,0

3,0

176,1

11,3

0,52

1,9


Mortgage loans by rate range

Mortgage Loans by Rate Range


Origination rate for vis and non vis mortgage loans

Origination Rate for VIS and Non VIS Mortgage loans*

*Origination Rate = Value of Originated Loans in t / Value of Outstanding loans in t-1.


Determinants of the origination rate

Determinants of the Origination Rate

LOG(ORIGTOT)

LOG(ORIGVIS)

LOG(ORIGNOVIS)

Variable Dependiente

OLS

OLS

OLS

Procedimiento

-3,75

1,91

1,89

Constante

-2,31

0,95

0,96

Estadístico t

0,02

0,34

0,34

Probabilidad

-0,55

-0,33

-0,42

DUM99-01

-4,45

-2,50

-3,10

Estadístico t

0,00

0,01

0,00

Probabilidad

0,29

0,60

0,27

LOG(Variable Dependiente (-1))

3,08

7,60

2,80

Estadístico t

0,00

0,00

0,01

Probabilidad

-0,28

0,03

-0,34

LOG(VENCIDA(-1))

-2,65

0,27

-2,56

Estadístico t

0,01

0,79

0,01

Probabilidad

-0,55

-0,29

-0,95

LOG(CUBRIMIENTO(-1))

-5,25

-2,80

-6,10

Estadístico t

0,00

0,01

0,00

Probabilidad

-0,18

-0,31

-0,10

LOG(LIQUIDEZ(-1))

-1,07

-1,50

-0,49

Estadístico t

0,29

0,14

0,63

Probabilidad

1,93

1,13

1,88

LOG(SOLVENCIA(-1))

4,46

2,31

3,84

Estadístico t

0,00

0,02

0,00

Probabilidad

-1,65

-1,16

-2,38

LOG(TASA(-1))

-3,07

-1,88

-3,46

Estadístico t

0,00

0,06

0,00

Probabilidad

0,94

0,83

0,94

R2 ajustado

-2,26

-17,23

-21,20

Log verosimilitud

2,08

2,36

2,11

Durbin Watson

87

87

87

Número Observaciones


Origination rate observed fitted and forecasted with and without legal instability

Origination Rate: Observed, Fitted and Forecasted with and without Legal Instability


Determinants of delinquency levels

Determinants of Delinquency Levels


Months in delinquency observed fitted y forecasted without legal instability

Months in Delinquency: Observed, Fitted y Forecasted without Legal Instability


Determinants of the default probability

Determinants of the Default Probability

Método: PROBIT BINARIO

Regresión

1

2

C

-6,37

-7,87

Probabilidad

0,00

0,00

Efecto marginal

-0,31

-0,35

DUM99

1,02

Probabilidad

0,00

Efecto marginal

0,05

DUM00

0,32

Probabilidad

0,00

Efecto marginal

0,01

DUM01

-1,26

Probabilidad

0,00

Efecto marginal

-0,06

VIS/NOVIS

-0,14

-0,10

Probabilidad

0,00

0,00

Efecto marginal

-0,01

0,00

BANCO

-0,17

-0,10

Probabilidad

0,00

0,00

Efecto marginal

-0,01

0,00

AMORT

-0,30

-0,36

Probabilidad

0,00

0,00

Efecto marginal

-0,01

-0,02

LOG(PLAZO)

0,43

0,61

Probabilidad

0,00

0,00

Efecto marginal

0,02

0,03

LOG(1+TASA)

4,71

6,17

Probabilidad

0,00

0,00

Efecto marginal

0,23

0,27

LOG(1+SALDOI)

0,25

0,13

Probabilidad

0,00

0,00

Efecto marginal

0,01

0,01

LOG(1+LTVORI)

1,36

1,32

Probabilidad

0,00

0,00

Efecto marginal

0,07

0,06

LOG(1+MORAPROM)

0,64

0,70

Probabilidad

0,00

0,00

Efecto marginal

0,03

0,03

LOG(1+GANCAP)

-3,02

-3,47

Probabilidad

0,00

0,00

Efecto marginal

-0,15

Observaciones incluidas

161.491

161.491

R2 de Mcfadden

0,32

0,40

Log verosimilitud

-15294

-13436

Iteraciones hasta convergencia

7

14


Marginal effect over the default probability

Marginal Effect Over the Default Probability


Default probability as a function of original ltv

Default Probability as a Function of Original LTV


Colombia rule of law creditor rights and the crisis of housing finance

THE COSTS OF THE CRISIS


Financial sector bailout cost

Financial Sector Bailout Cost


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