According to the definition provided by the Real Academia de la Lengua Española, the term securitization denotes "to convert certain assets, usually loans, into instruments tradable in the market." James Rosenthal (1988) defines securitization as "the carefully structured process whereby loans and other receivables are packaged, underwritten, and sold in the form of securities [to Investors]." For more information about securitization, please visit our section Securitization.
Mortgage loan securitization is a mechanism provided in Law 546/1999 (Law of Housing), by which the credit institutions, securitization conduits, and other authorized organizations issue securities that represent loans granted for financing the construction and purchase of housing.
The parties to a process of mortgage loan securitization are: the Originators (entities that originate mortgage loans for borrowers); the Authorized Servicers (entities authorized to service the mortgage loan billing and collection); the Master Servicer (entity that watches over the collection by Authorized Servicers and calculates and makes payments to the Securities); the Issuer (institution that issues securities, namely Titularizadora Colombiana, who issues TIPS); and the Investors (individuals or legal entities that are underwriters or purchasers of the securities).
For all Colombians, this mechanism offers benefits identified in other countries that have used securitization as an economic growth tool: 1. Overall development of the real estate sector, given the potential mortgage loan offering generated insofar as banks are provided with greater liquidity to be in turn translated into new mortgage loans. 2. Increased construction activity 3. Increased employment 4. Economy growth 5. Homeownership by millions of Colombians granted with distinct conveniences, thus offering wellbeing and improved quality of life. 6. Greater development and growth of capital markets 7. Family home purchase will be indirectly financed by the resources that those same families have saved in several entities, such as pension funds.
If you are a mortgage borrower: 1. Insofar as Titularizadora purchases more mortgage loans and issues mortgage-backed securities, the liquidity of mortgage entities will grow and they in turn may offer improved alternatives of housing loans. 2. This provides greater efficiency to mortgage loan origination. 3. Loan granting, country level interest rates, and simplified processes will be standardized. 4. Since the borrower has a current loan with a bank seller of loans, the terms and conditions entered into between the borrower and the bank will be maintained.
If you are a potential investor and wish to purchase securities backed by mortgage loans, you will obtain: 1) Mortgage-backed securities with AAA risk rating; 2) Financial yields subject to the conditions of the securities issuance; 3) Liquidity through the secondary market since the securities are registered with the Stock Exchange; 4) Protection in face of the credit risk of securitized mortgage loans through the diversification and credit enhancement mechanisms, including without limitations guarantees from Fogafin (Guarantee fund for financial institutions) and the IFC (International Financial Corporation, a World Bank subsidiary). For further details, please go to our prospectus in the Issues section.
Mortgage-backed bonds are credit-backed securities issued directly by credit institutions with the aim of exclusively fulfilling the loan contracts for home construction and its long-term financing. These securities are backed by the asset consisting of mortgage loans, are the property of the credit institution that is both creditor and mortgage-backed bond issuer.
Mortgage-backed securities (MBS) are those issued in securitization processes by credit institutions or any other entity addressed in Law 546/1999 §1. They may be either equity securities or credit-backed securities, Correspondingly, credit institutions and the entities addressed in Law 546/1999 §1 may transfer the mortgage loans that they possess in their favor, where they are the creditors, including the respective collaterals and any other benefits, to securitizations companies or trusts for them to issue mortgage-backed securities in securitization processes.