Mortgages Triple to Keep Pace With Inflation : Chile Faces New Revolt--by Irate Homeowners

Many middle-class homeowners have stopped paying their mortgages in a campaign to get the military government to give them relief from rates that keep rising with the cost of living.

In some cases, homeowners now owe three times the original cost of homes bought just a few years ago.

The homeowners complain that they are victims of government economic policies that have eroded their income. Their main gripe is that while mortgages are tied to inflation, wages have been forcibly kept down.

The government of President Augusto Pinochet, an army general, says the homeowners knew what they were getting into when they took out their mortgages. It says it doesn’t intend to change the repayment system.

Moratorium Urged

The Federation of Mortgage Debtors of Chile, a newly formed homeowners’ group, has initiated a nationwide call for a moratorium on mortgage payments. Members also are asked to hide delinquent payers from court officials seeking to serve foreclosure notices.

Such measures are technically crimes in Chile but no action is known to have been taken.

The homeowners maintain that their protest is strictly economic and not intended as a political confrontation with Pinochet. However, mortgage nonpayment is a main theme of the National Civic Assembly, a wide-ranging civilian political coalition that wants Pinochet out.

“The mortgage situation has become a social problem of nationwide magnitude,” Luis Sanchez Castellon, a 33-year-old middle-class lawyer who heads the debtors’ federation, said in an interview. “People simply can’t meet their payments any more. The government has an obligation to do something.”

685,000 Mortgages

Chile has 685,000 individual home mortgages which, counting family members, cover about 30% of the country’s 11.6 million people. Some of the debtors are junior-grade officers in the armed forces and national police.

Government figures released in June showed that mortgage arrears as of April had reached $30 million, up 17% from the end of 1985.

An economic boom in Chile in the late 1970s led to a wave of home buying. Most of it was with variable-rate indexed mortgages consisting of basic interest of 12% to 13% plus the annual cost of living. People at the time did not seem to worry about the fine print and signed up in record numbers for home financing.

But in late 1981 a recession hit Chile. The government, saying drastic measures were needed to prevent a total collapse, ordered wage increases kept far below inflation, which from 1982 to 1985 averaged 23% annually.

Rates Continued Upward

Home mortgage rates, however, continued upward, in accordance with an inflation indicator known by its Spanish initials, UF. Homeowners had to keep paying each month in multiples of UFs, whose value in Chilean pesos went up every day and still does.

As an example, Sanchez Castellon of the debtors’ federation took out a 15-year mortgage in 1981 tied to the UF on a three-bedroom house in Santiago for 1.7 million pesos. He made all his monthly payments through March of this year. But in June he owed 3.1 million pesos ($16,400) on the mortgage.

“This is not only ridiculous, it’s criminal--on the part of the government,” Sanchez Castellon said. “So now I’ve stopped paying.”

End to System Sought

The debtors’ federation in May wrote to Pinochet seeking an end to the UF system.

“People who have been able to meet their obligations on time suddenly see that the amount of their debt, instead of being reduced, inexplicably has gone up,” the letter said.

It added that in many cases, people’s debts on the unpaid parts of their mortgages are more than the cost of an identical house built from scratch today.

By late June the president had not responded.

The debtors’ federation led a homeowners’ procession in June to a statue of the Virgin Mary overlooking Santiago, where Roman Catholic priests led a prayer service for mortgage relief.

‘Buy 1, Pay for 3’

Participants sneaked past police checkpoints carrying, inside their coats, signs they later unfurled calling for an end to indexed mortgages. One said: “UF Special Offer--Buy 1 house, pay for 3.”

The federation then called on homeowners to withhold mortgage payments for two months. It said 96% of 91,000 homeowners polled said they would go along.

The group also urged homeowners to form neighborhood committees to prevent neighbors in arrears from being served with foreclosure notices. Suggested tactics included the taking down of street signs and house numbers and temporarily moving delinquent families into other people’s houses.

Peter Bromberg, chief spokesman for the Ministry of Housing and Urban Development said, “There is no doubt the recession made it hard for many people to meet their mortgage payments. However, Chile is pulling out of the recession. Also, Chile has had indexed mortgages in some form since 1959, and there’s no reason to change things now.”