Housing Finance Market Overview
In Brazil, mortgage loans are available to homebuyers mainly from banks. But housing finance loans also are made available by non-depository mortgage companies, state or local government-run housing companies and by private and public housing cooperatives. Even real estate developers and builders regularly offer their own financial schemes. The main lender in Brazil has been the government-owned Caixa Econômica Federal. The Brazilian mortgage market is still far below the levels in comparable countries with a ratio of outstanding mortgage debt to GDP of 2.2 per cent in 2008. Only less than 50 per cent of property purchases were financed with mortgages. The outstanding mortgage debt grew only very slightly from 2001 to 2004 in absolute terms, so that its ratio to GDP fell even from 1.8 per cent to 1.4 per cent. Yet, from 2005 to 2008 the ratio of mortgage debt outstanding to GDP grew from 1.4 per cent to 2.2 per cent.
The Market from the Perspective of the Demand Side
In Brazil, the usual maximal loan-to-value (LTV) ratio equals 80 per cent. Yet, Caixa Econômica Federal offers – under certain circumstances – LTV ratios of up to 100 per cent. The most loans have fixed real interest rates. Usually, the loans consist of a fixed interest component and the daily changing and regularly increasing Taxa Referencial, an instrument for inflationary adjustment.
House Price Development
There is no reliable source for house price changes in Brazil as no official price index exists. However, according to the information available from real estate agencies house prices increased annually by around 20 per cent in the major cities in the last years – at least in the upper segment of the market.
Special Characteristics of the Market
Two housing finance systems operate alongside each other in Brazil: the Sistema Financeiro de Habitação (SFH) – established in 1964 – and the Sistema de financiamento imobiliário (SFI) which is operational since 1997. The SFH draws on savings accounts, a workers’ severance fund (Fundo de Garantia do Tempo de Servico – FGTS), mortgage notes and government repass loans to fund its loans. The FGTS is a fund made up of monthly deposits made mandatorily by employers into accounts held in the names of their employees at the Caixa Econômica Federal. Under SFH regulations, banks are required to direct 65 per cent of savings deposits balances into real estate lending and 15 per cent have to be deposited as reserve requirement with the Central Bank.
With the SFI conditions for the development of a secondary mortgage market, including the creation of securitization companies and issuance of Certificados de Recebíveis Imobiliários (CRIs) – comparable but not fully equivalent to mortgage backed securities – were established. The SFI relies on the capital markets for funding, and securitisation in particular. With the launch of SFI, CIBRASEC, a securitisation company was founded by some of the largest public and private financial groups. So far, this company has been the standard setter and market leader in regard to the issuance of CRIs.
For banks are savings accounts a source of cheap core deposits so that they fund their mortgage market activities mainly with them. The government-owned Caixa Econômica Federal as well as state or local government-run housing companies and private and public housing cooperatives make housing loans available with FGTS resources. The securitisation of mortgages plays so far only a marginal role in the Brazilian mortgage market.