Edging towards its third issue of RMBS, Colombia's quasi-Fannie Mae has closed the purchase of one of three loan pools to back the deal. The country's leading mortgage bank, Granahorrar, has sold Titularizadora Colombiana a Ps300 billion (US$106 million) portfolio. Due diligence is underway to cull the tiny number of loans that fall short of the agency's standards. "In the last two issues we eliminated only a very small portion of the purchased mortgages," said Nicolas Brezing, an analyst at Titularizadora. In the last placement on Nov. 20, some Ps588 billion (US$207 million) in loans were kept from the purchased pool of roughly Ps650 billion (US$228 million).

And now participating banks are more familiar with the criteria and so less likely to hand over duds, Brezing added. Loans from local banks Banco Davivienda and Banco Colmena will round out the pool. Granahorrar holds 19.2% of the total volume of mortgages in Colombia, estimated at Ps11.2 trillion (US$3.9billion). Davivienda comes in second with 16.9%, and Colmena has an 11.8% share. Davivienda and Comena backed up the second issue, along with Banco Conavi.

Projected at US$500 billion (US$177 million), Titularizadora's third placement is slated for June. Last year, the agency inaugurated the RMBS market, floating Ps1.07 trillion (US$378 million) of paper. It aims to securitize about the same volume this year, sopping up nearly 20% of the domestic pool of residential mortgages by the end of 2003.

Titularizadora has selected twelve brokerages to peddle the upcoming bond. Citivalores is the only one among them linked to a foreign entity. The other designated distributors include Casa de Valores, Suvalor, Correval and Interbolsa.

Brezing said pricing should benefit from a rise in income taxes since the last issue. Known locally at TIPs, Titularizadora's bonds are tax-exempt, a rarity in the Colombian market. Participants in the deal are hoping that this special status will endear the paper to companies and retail investors, which so far account for a meager share of TIPs. Another advantage of the third issue over the previous one is the stronger health of trust funds. Floundering from intense losses on treasuries, the funds eschewed the second issue of TIPs last November. "They were hit very hard, but have recovered since then," Brezing said.

He added that the agency will keep to a three-pronged trust structure introduced in the second issue. One SPE holds all the BIS mortgages, which are lent to lower income individuals and enjoy an implicit guarantee from the government. Another trust will hold the plain non-BIS loans, which are likely to have a small partial guarantee from the International Finance Corporation, as in previous issues. The third trust will issue the total. (see ASR 11/25/02, p.1).

NPLs ripe for securitization

On an untested front, Titularizadora is pressing ahead with plans to securitize non-performing loans (see ASR 3/24, p.20). Banco AV Villas said it was interested in selling Ps420 billion (US$148 million) in NPLs to the entity, Brezing said. In order to rate triple-A on the national scale, the structure will have to be heavily overcollateralized. In the current blueprint, the originator would swallow a subordinated tranche worth around 70% of the total issue. Apart from working out the structural details, Titularizadora has to placate regulators, which have yet to okay the deal, even in principle. "If the Superintendency of Banks says the [originator] has to provision 100% of the issue, then they're not going to do it," Brezing said, citing one way regulators could abort prospects for the asset class.

For now, however, Titularizadora remains optimistic over NPLs and market players are watching in earnest. "It's a product I'd really like to see," said Tomas Gomez, an analyst at Suvalor. "It would make the mortgage paper market a lot more dynamic and, with coverage bringing the rating to triple-A, they'd have a nice audience of investors."

The volume of NPLs in Colombia has held steady at about Ps2.5 trillion (US$879 million) since late 2001, while mortgage lending has dropped off. As a result, the ratio of NPLs to total loans has crawled higher and now exceeds 20% of total mortgages. In early 90s, the share of NPLs was in the single digits. Lending has picked up sharply this year from its doldrums in 2001, according to Titularizadora.

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