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Chile, the storm approaches for housing borrowers

On 30 th  June, the ‘freeze’ on repossessions announced by the Government for the PET sector, the bank’s longest-term borrowers, finishes. Although a review of policies to help the most vulnerable sectors of this group has been announced, there is concern about what will happen to the rest. Legal proceedings are widespread, and not even the Government knows the number of debt recollection actions that the bank is undertaking.

By Claudia Urquieta Ch. – 10th February 2009

Boosted by the economic crisis and unemployment

The economic storm announced by President Michelle Bachelet has officially arrived in Chile. The signs are numerous: decreasing property sales, the collapse of prestige projects, and the worrying increase in unemployment.

No one is safe. Not even Horst Paulmann, who had to postpone his star project, the Costanera Centre. But those most affected by the storm will be the middle-income and poorest sectors of the country, who include Chile’s 502,000 plus social housing borrowers, according to official figures. In fact, according to the National Association of Housing Rights (Agrupación Nacional de Derechos Habitacionales  or Andha Chile), this has risen to more than 720,000. The difference, according to the movement, is because at least 30 per cent don’t receive any sort of subsidy. Many of them are about to face housing repossession: 30th June is the deadline for the ‘freeze’ on repossessions announced by the President in 2008 for the ‘Special Workers Programme’ (‘Programa Especial de Trabajadores ’ or PET) sector, which accounts for 191,925 borrowers, and is the bank’s oldest borrowing programme. Of these, some 4,600 found themselves facing debt recollection action in April 2007, according to figures presented to the Senate by the Banks and Financial Institutions Regulator (Superintendencia de Bancos e Instituciones Financieras al Senado  - SBIF).

But there are no up-to-date figures. When Banco Estado was contacted about this, no information was available. Nor was there at the Ministry of Housing and Urbanism (Ministerio de Vivienda y Urbanismo  - Minyu), where they only have the figures presented by the SBIF.

This situation is quite worrying, given that this figure is key for a realistic projection of what is to come. What is certain is that the problem could mean thousands of families are evicted, since even despite the ‘freeze’, legal proceedings continue. Letters announcing repossessions arrive daily, accompanied by phone calls and visits from the bank, putting pressure on borrowers for repayments.

With regard to this, the head of Minvu’s mortgage portfolio, Juan Pino, explained that in the coming months a policy would be implemented to help the PET’s most vulnerable sectors.

But given that the process of discounting interest rates, started in 2007 – adopted due to the programme having higher interest rates than the market average – hasn’t finished, ‘it’s not possible to predict what will happen with the repossessions which have been delayed’. 

A tent but no home

In Villa Cordillera settlement in Rancagua, some twenty residents are clear about the outlook to come. For this reason, since 28th January they have been leading a peaceful protest, joined by three other settlements: Villa San Ignacio, Villa Provincial and Poblacion San Rafael.

The idea is a symbolic stay in tents while they wait for an official response. Because according to protestors, exchanging homes for tents is what awaits them if conditions don’t change and a definitive solution to the problem isn’t found. The problem has dragged on for years, but with the economic crisis and redundancies facing many, it is more urgent than ever. 

‘In my street there are people who earn the minimum wage. And you have to pay basic costs. So for many, paying the mortgage means not eating. That’s the harsh reality’, explains Paola Elizondo, of Villa San Ignacio.

José Ramos, of Villa Provincial, is experiencing this problem in the flesh. ‘We’ve been here 10 years and we’re about 18 payments behind. We’re scared, upset not to find a solution. I sell flowers and the little I earn only covers food and bills’.

The issue is complex, as is the system of different housing subsidy programmes.

The end of state mortgage credits

Nowadays it is not possible to access state mortgage credits, since the Ricardo Lagos government issued a decree in 2002, transferring responsibility for housing construction and credits to the private sector.

For this reason, it is no longer possible to become a Serviu borrower. There are currently 93,847 Serviu (mortgage credits granted by the State) and Serviu Bank borrowers. Credits were accessed via Serviu but transferred to the mortgage portfolio of BancoEstado and the Development Bank (Banco del Desarrollo ).

There is a big difference between how these borrowers have been treated compared to others, since they are the only ones to benefit from their total debt being subsidized, either immediately, or with a deposit, depending on the case.

Technically, their problem is resolved, but as in the case of the PET borrowers, their period of grace has a deadline, which in this case is this 31st December.

According to Minvu’s figures, to date 46,005 people have not finished paying their deposit. This is complicated by the fact that although some of them are only $400,000 pesos from being owners, their economic circumstances prevent them paying. Many live off the bare minimum. It’s not clear what will happen to those who don’t make it before that date; in this case too, legal proceedings are underway.

Those who didn’t buy their houses under this programme or the PET have no period of grace. And until now, no special protection has been announced for them.

Different payments, same houses

En Villa Cordillera the apartments are all the same. At least there are no structural differences between them: hammer in a nail and it goes through the wall in all of them. Residents suffered floods together, and the lack of privacy is equally democratic, just like in the film ‘El Chacotero Sentimental ’.

The size of the houses is also the same; no one has more than 48 square metres.

In this case, all the residents are in the PET programme. This is different from the pot pourri  of residential subsidy programmes that is found in other places, like Villa San Rafael. There the houses are also basic and very similar, but it is possible to find all types of borrowers, in receipt of different benefits and subsidies.

The difference derives principally from each resident’s economic status, and the housing programme which they are in. For example, the very poor are offered a subsidy of up to $12,000,000 pesos. So they join Solidarity Fund 1 (Fondo Solidario 1 ), which depends on social security credit.

In the case of Solidarity Fund 2 (Fondo Solidario 2 ), members are no longer considered ‘very poor’, although they are still classed as ‘vulnerable’. So they can apply directly for private mortgage credit, and receive a subsidy which allows them to borrow from the bank.

It’s another story for the rest, who are united under Decree 62. Those who belong to the PET are found in this sector. No longer considered vulnerable but middle class, their subsidies and securities are much lower. Which for many of them has meant paying three or four times the real value of basic housing, since borrowing from the bank means paying high interest rates. This is especially because many of them make their mortgage payments on time, which along with the interest turns into an endless cycle.

So, as they explain, ‘we end up paying for three houses’.

‘The winners are the banks. They repossess, charge the state guarantee, then buy and sell again, to people who are granted new subsidies. They repeat this deal in an endless cycle’, explains Rubén Cespéd, national director of Andha Chile.

BancoEstado’s credits cover 83% of housing borrowers, followed by the Development Bank (Banco de Desarrollo ), which has 7.1%. Banco Santander has 4.1% and the Bank of Chile (Banco de Chile ) 2.2%. Scotiabank and Ripley have 1.3% and 1.0% respectively. BBVA, Banco Falabella, Corpbanca, BCI and Citibank cover the remaining 1.4%.

Prevention is better than cure

The borrowers are not asking for free housing, nor that a blind eye is turned to their debts. What they want is a housing policy where the state has a strong role, not limited to social subsidies.

According to figures from the Casen Survey (Encuesta Casen ) 2006, the number of extended and immediate families affected in the country is over 830,000. This figure hasn’t changed since 2003, from which it can be concluded that no real advance has been made in resolving the problem of lack of social housing.

Which could furthermore turn into a chronic headache for the State and the affected families, if the rain of repossessions which threatens the poorest sectors in the country in the coming months is not curbed.