UDI’s Currency Norman Oetker .. English Class Reynosa Mae Hong Son Thailand Mexico St. Charles Missouri Hmong Missionary Amero A Comparison To The-

UDI’S MEO L.A.M. Norman Oetker Missionary "The Light Amidst the Mong/MEO" Hmong Thailand, Reynosa Mexico, English Class, St. Charles Missouri US.

 WANTED… A WRITER FOR A BOOK ON MY LIFE AS A CHRISTIAN MISSIONARY

CONTACT: normanoetker@hotmail.com  October 2009

 
 

Is It The New Currency Of Mexico? Banking And US Dollar Collapse The introduction of the Amero?

 

October 2008

  • Norman Oetker English Class Reynosa 

 

  • There Has Been Much Speculation to the eventual installation of a new currency into the United States.

  • It Is Necessary To understand A General Principle Of Another Possibility.

  • I Have Included In Part Documentation about a similar problem that happened in Mexico. In like manner, they in fact went through a housing crisis, that devalued their Peso. They, through banking reform initiatives, in turn, introduced another currency named UDI’s.

  • On The Contrary, UDI’s were created as an accounting measure. A person- if they accepted this type of refinancing- had units of credit    

    Quote, "it offered borrowers an interest rate subsidy if they signed new

    loan contracts and switched from peso denominated loans to loans denominated in an

    inflation-adjusted accounting unit called “Units of Investment” (Unidades de Inversion) or

    UDI’s. UDI’s were created as an alternative currency for accounting purposes…."

 

 

 http://www.jchs.harvard.edu/publications/international/pickering_w00-3.pdf

 

Joint Center for Housing Studies

Harvard University

The Mexico Mortgage Market Boom, Bust and Bail Out:

Determinants of Borrower Default and Loan Restructure

After the 1995 Currency Crisis

Natalie Pickering

W00-3

April 2000

The Mexico Mortgage Market Boom, Bust and Bail Out: Determinants of Borrower

Default and Loan Restructure After the 1995 Currency Crisis

by

Natalie Pickering

Introduction

The Mexican government has struggled to curtail growth of bad bank loans since the

currency devaluation of December1994. The downturn in the economy precipitated a

banking crisis in which the share of non-performing assets grew to over 40 percent.

Individual residential mortgages comprise a large portion of the delinquent portfolio, and

have been a major focus of government intervention. In 1995 when the government began

aiding banks to restructure loans, half of the total funds available–an amount over US$7

billion–were directed to restructuring mortgage credits (Comision Nacional Bancaria y De

Valores [CNBV] 1996:2).1 Government aid to the mortgage sector grew to nearly US$18

billion by the end of 1996.2

This paper examines borrower choice to restructure mortgage loans under the initial

phase of the government relief program called “The Accord for the Assistance of the Banking

System” (Acuerdo de Apoyo a los Deudores de la Banca [ADE]). The ADE program was the

first in a series of government and individual bank relief programs aimed to stem payment

delinquency and default. Substantial controversy surrounded the ADE program. The

program was voluntary, but it offered borrowers an interest rate subsidy if they signed new

loan contracts and switched from peso denominated loans to loans denominated in an

inflation-adjusted accounting unit called “Units of Investment” (Unidades de Inversion) or

UDI’s. UDI’s were created as an alternative currency for accounting purposes to allow

financial products such as mortgage to maintain a constant purchasing power (real value) in

the face of inflation. The value of the UDI is published daily and grows in tandem with

inflation.

Summary and Conclusions

The currency devaluation that Mexico suffered at the end of 1994 set off a recession

and banking crisis from which the country has still not fully recovered. The housing market

has been one of the sectors most seriously affected. Despite attempts by the government to

aid banks and borrowers with mortgage loans, default rates have remained high.

The results of this study provide insight into why the ADE government aid program

failed between 1995 and 1996. Loan contracts that permitted excessive negative amortization

coupled with a decline in property values left many borrowers with negative equity in their

homes. With negative home equity, borrowers default to maximize wealth. Nearly two

decades of research on mortgage pricing have shown that default should be viewed as a

contingent claim attached to the mortgage contract. Lenders sell a put option when they

originate a mortgage that explicitly allows the borrower to relinquish the home at the price of

the mortgage. When the value of the outstanding loan exceeds the value of the house, the put

is in the money and a rational, wealth-maximizing borrower will default. Mexican mortgage

holders have largely responded, as financial theory would predict, by exercising the put

option to default on their loans.

The ADE program, by giving payment discounts, did not affect borrowers’ negative

equity and did not address the root cause of default. In fact, the results presented here show

that this policy decision was also regressive in that lower income borrowers were less likely

to participate in the program choosing instead to continue paying on their current mortgages.

High and medium income borrowers were more likely to default or to restructure and thus

receive the benefits of these discounts.

Many loans fell into delinquency subsequent to restructuring. Some claim that

because payments rose with inflation under the restructured contracts, borrowers became

delinquent again when they were unable to keep up with payment increases. Others point out

that the ADE program only provided borrowers with an opportunity to defer foreclosure, but

borrowers’ participation in the program did not represent a greater willingness to pay. Later

evidence suggests that many borrowers did restructure only to fall into delinquency again.

Foreclosure deferral was a plausible motivation for this behavior, but payment increases were

not. A more likely reason is that since many borrowers were still in a negative equity position

31

following restructure, they were rationally exercising the option to default even subsequent to

the ADE.

This is not to say that default was only brought on by negative equity. Borrowers

have suffered payment problems due to a decline in income under the old and new contracts

alike. In addition, the systemic rise in default has made foreclosure even more difficult for

banks. Moral hazard has plagued the mortgage market, creating excessive administrative

burdens for banks and courts alike. Many borrowers, recognizing that banks are unable to

possess their properties without an extended and costly court case, have chosen non-payment

as a means to obtain a discounted settlement with the bank. The results of this study would

suggest that higher income borrowers, who here show a propensity to default even when

holding positive equity in their homes, are more adept at receiving these discounts. Again

this leads to a regressive outcome for resolving the delinquency problem.

The results of this study point out that basic research on the causes of borrower

behavior in the mortgage market would have aided the government in designing a relief

program that better addressed the causes of default and benefited lower-income borrowers.

Direct discounts off the balance of the loan would have been a more effective policy for

stemming default and encouraging restructure. Eventually, nearly three years later, the

government did decide to support banks in granting such discounts through a program called

Punto Final. By this time, however, borrowers had grown to expect a new relief program

each time delinquency rose. Strategic default was well cultivated in the market making it

ever harder to attain positive results even from a well-designed program. Successive policy

failures, such as that of the ADE program, helped nurture a culture of non-payment. Only

better-designed policy initiatives t hat take into consideration the causes of borrower choice

can reverse this trend.

 

Norman Oetker English Class Reynosa Mae Hong Son Thailand Mexico St. Charles Missouri Hmong Missionary Amero A Comparison To The UDI’s Of Mexico

Gold Norman Oetker.. English Class Reynosa Mae Hong Son Thailand Mexico St. Charles Missouri Hmong Missionary Silver
House Norman Oetker .. English Class Reynosa Mae Hong Son Thailand Mexico St. Charles Missouri Hmong Missionary