What is securitization
Means the pooling or bundling of financial assets to be transformed into securities and sold or purchased by the investors.
Securitization creates a self-financed structure represented in securities with the single payment source in the cash flow of the underlying assets involved in the process.
For the mortgage loan portfolio, the financial assets comprise mortgage loans generators of cash flow that corresponds to the installments paid by the borrowers.
Securitization in the world
Securitization is a modern financing tool massively used in developed countries, particularly in the USA. Costs are significantly lower than the intermediation margins of credit institutions. Administrative expenses are almost negligible and in Colombia, Titularizadora does not provide for reserves or any mandatory investments.
This gain in efficiency bears large scale macroeconomic implications. In the United States, the securitization intermediation margin has been reduced to only half a percentage point, clearly impacting both investment and growth. No doubt this mechanism significantly accounts for the low cost of mortgage financing in the US.
The US mortgage market is highly specialized. There is a sharp differentiation between the functions of the loan originators and servicers —primary market— and those managing the risks and raising funds —secondary market—. The public sector has played a key role in this market development, partly by creating key institutions for the secondary market providing for the connection between the housing market and the capital markets. Today, the secondary market is dominated by these governmental entities, though increasingly private institutions are entering the race.
Advantages for the investor
By investing in Titularizadora Colombiana’s products, you are procuring investments structured and managed under high quality standards and authorized by the Superintendencia Financiera de Colombia. Titularizadora Colombiana’s certification of the processes carried by originators and servicers ensures a good handling in the management of the underlying assets. In addition:
- Investments in securitization enable you to improve the diversification of your portfolio and have investments in underlying assets capable of generating cash flows.
- Although most of our securitizations are AAA rated, we can structure issues with other ratings so investors with an appetite for higher risks can invest in our products.
- We offer various times and maturities that allow the entry of investors with diverse portfolio strategies.
- Securitization contributes to provide depth to the capital markets.
How to invest in Securitization
a. Issues (Primary Market)
For each issue, Titularizadora defines the underwriting firms among the stockbrokers, who will be in charge of giving advice to the interested investors and support the promotion of the securities.
Securities are placed in the market through Dutch Auction, Firm Demand, or Offering Book Building in the Bolsa de Valores de Colombia (Colombian Stock Exchange).
Investors participate in the primary underwriting of securities by contacting any of the brokers authorized to act as the issue underwriters and put a purchase offer for the securities through said brokers.
The dates of the issues are informed to the investors through dissemination channels such as specialized finance journals, countrywide circulation newspapers, and our website.
Any investor can buy securities in the primary issue. The main purchasers have been traditionally pension and severance funds, investment funds, insurance companies that provide life insurance and general insurance, and other financial entities. Individuals and real sector companies have invested also.
b. Investments made after the Issues (secondary market)
Ask any stockbroker or intermediary for advice in your investment decision on securities backed by Titularizadora, according to your needs and expectations.
Main Securitization Conduits in the World
Fannie Mae. Federal National Mortgage Association, USA
It provides financial products and services for low- or moderate- income families to be able to buy homes of their own. Since the beginning in 1938, it has made it possible for more than 30 million families to achieve the American dream of homeownership. The estimate is that one out of five home mortgages is financed by Fannie Mae in the US.
Freddie MaC. Federal Home Loan Mortgage Corporation, USA
In 1970 it became a competitor of Fannie Mae and since then, it has gained a significant ground in the market. Its mission is to develop the secondary mortgage market and expand the opportunities of home purchasing, ensuring a constant cash flow to the credit institutions.
Ginnie Mae. Government National Mortgage Association, USA
A government agency created in 1968 to issue securities that, save from the US Treasury bonds, are the only ones fully guaranteed by the federal government. They are specialized in sectors where the government must ensure fund availability for mortgages, i.e. they purchase mortgages the borrowers of which are veterans, indigenous communities and other minorities.
CMHC. Canada Mortgage & Housing Corporation, Canada
Since 1946 CMHC has been developing new ways of financing housing and helping seniors or low-income citizens to get healthy and safe housing. This institution offers plans for the disabled, the environmentally hypersensitive, and children victims of domestic violence.
The Hong Kong Mortgage Corporation Limited. Hong Kong
Created in 1997 to facilitate the secondary mortgage market, allowing credit institutions to manage risks effectively..
Komoco, KoreaCreated in 1999 to promote the Korean economy through the issuance of securities to be sold in capital markets and the transfer of these monies to credit institutions. * Definition by James A. Rosenthal in “Securitization of Credit,” 1988
