New legislation is set to change the face of Brazilian mortgage loans and by extension, boost the economy. Under the proposal, homeowners may use their properties as guarantees in multiple loans. The Brazilian Central Bank (BCB) calculates that the measure could release R$1 billion into the economy.
General boost to economy and jobs
According to Alfredo Sachsida from the Brazilian Ministry of Economy, the change should stimulate competition between banks and bring down interest rates. He also expects the new regulations to create more jobs within the Brazilian economy.
The President of the BCB agrees. “There’s a large number of assets that are not being used,” said Roberto Campos Neto.
Multiple guarantees from real estate
The proposed legislation will allow Brazilian homeowners to use the value of their properties as a guarantee in multiple loans. Real estate can currently only be used as collateral in one loan application and in most cases, the property’s value is far superior to the amount borrowed. “We are returning to buyers the right to use the guarantee of their homes,” explained Sachsida.
He added that the aim is to reverse the current situation whereby a Brazilian mortgage loan holder requests a loan worth R$100,000 and backs it with a property valued at R$1 million but cannot use it for further applications. “This is not good,” he said.
General boost to Brazilian mortgage loans
For Campos Neto, the measure will stimulate the mortgage market generally. “The proposal has the potential to boost activity within Brazilian real estate generally,” the President of the BCB said. He added that it could also expand credit and reduce costs, all benefits to homebuyers.
New regulators of guarantees
Brazil has created Guarantee Management Institutions (Instituiçoes Gestoras de Garantias/ IGG) as a safeguard for the proposed measures. Their role will be to take on guarantees from Brazilian banks and pay them in case of default. They will come under the umbrella of the BCB who will monitor their performance and activity.
“We’re still very much at the beginning,” said Campos Neto, “and there are many measures we can introduce to improve the performance of our financial system.”
The proposed legislation is still at its initial stages and, if approved by Congress, will form part of the New Brand of Guarantees.