Chile Forum

Caught this bloomberg article about Chile opening up its markets to foreign investors more, and I am going to have to do some more research to see what exactly this means. It may be nothing for the average foreigner:
http://www.bloomberg.com/apps/news?pid= ... S1xNsilgv8

One thing that ticks me off with the current administration is this tunnel vision they have about what constitutes "direct foreign investment". They think if you are not investing 100 million dollars targeted at los condes or vina, then you are not a foreign investor; yet, they likely lost billions and billions of dollars ignoring the needs of the small investor over the last 20 years.

Essentially ignoring the type of people that hang out on this board, and use their ATM cards to pay their maid, buy groceries, start a business because they can not get reliable no B.S. banking services.

It'll be a two way street, foreign corporate raiders like Mittel will likely be first in line.

Some of these monopoly companies in Chile could stand to have their clocks financially cleaned. Their executives are a little too settled in to their positions.

I agree with your sentiments, but reading the following made my blood run cold:

"The Finance Ministry’s proposal would allow banks to sell covered bonds backed by a pool of mortgages. The new bonds will lower costs for banks financing home loans, Velasco said."

This sounds exactly like the mortgage backed securities, or MBS that were cooked up at the big investment firms in New York. The idea was innocent enough, why should banks have to sit on non-traditional mortgages when they could be bundled together and sold like bonds to outside investors? This frees up the bank to make more loans, and it also earns big bucks for the investment houses that deal in the MBS transactions. People wonder why normally cautious banks made all those crazy zero-down, negative amortization, 125%, and other silly mortgages, and the reason was they could unload them bundled as MBS! Put a spoonfull of crap in a thousand gallons of water, and no one will notice. Eventually (2007) the investment bankers were dumping bucket-fulls of crap in the thousand gallons of water, holding their noses, and smiling like everything was fine.

Unfortunately, the computer models used to rate these bonds and assign risk were either faulty, rigged, or both, and right now there are thousands of investors world wide and hundreds of big banks sitting on these things wishing they had never heard of them. AIG wrote trillions of dollars of "insurance" swaps that supposedly gave the the big players cover so they could lever up 50:1 on their MBS and make even more money. But when you're levered 50:1 and the underlying asset drops just 2% in value -- tilt! Recent bank closures show that these bonds sell at a 20% to 40% discount when are auctioned today, and this means that many of the banks holding them are insolvent. The five largest banks have been deemed "too big to fail", but there are hundreds, maybe over 1000, other banks that will eventually have to face reality and close their doors. U.S. taxpayers will get the bill -- but where the money will come from to pay for the mess is anybody's guess.

It would be a shame if the regulators and banks in Chile let the same nonsense happen down there.

yea, I am not even sure how that would work under Chile's current real estate laws without them mucking around in modifying the current mortgage laws to the point where the entire market gets destabilized. I believe under the current laws the bonds would be essentially worthless as soon as they where issued, because you would never have a way to foreclose on a property. Well, at least not without incurring so many extra expenses that any gains on the bonds are lost.

They already have this problem in the States where no one is even sure who owns what property. Half those abandon homes in the States can not be sold or auctioned, because no one knows who owns them.

Mortgages in Chile are fairly ironclad right now. It is fast and relatively cheap for a mortgage holder to send a property to auction, and to cancel a mortgage. We have seen properties go to auction and be sold in as little as a couple of weeks.

We also when dealing with purchases, we regularly negotiate directly with the banks to pay off the mortgage when we are buying properties, because you have to have the mortgage holders authorization to sell the property. I can just imagine the mess of needing a power of attorney from some hedge fund in China that holds a billion dollars in Chilean mortgages just to handle a sale of say a 80 million pesos property. It would kill likely 1/2 half of the real estate market in Chile overnight, if the laws where not modified to handle it correctly or where modified wrongly.

My vote is don't mess with it. Chile's mortgage system is fairly rock solid.

The other thing to keep in mind is that a mortgage holder in Chile only owns the debt, not the house. So, if a property say has a purchase price of 100 million pesos, the bank provides a mortgage for 80 million pesos, they are entitled to the debt and only the debt at auction. If it sells for 120 million at auction, the owner gets the extra 40 million not the bank. The bank is just stuck with any cost above that. They don't "own" the house. All they have is a right to force it to auction.