Brazil's Caixa seeks to open up mortgage market
22nd June 2011
Brazil's biggest housing lender, Caixa Economica Federal, plans to sell up to $2 billion in mortgage-backed securities this year to institutional investors as part of a plan to modernize the sector and ensure continued growth, the bank's president said on Wednesday.
The transaction would mark a milestone in the maturity of Brazil's still-nascent mortgage market, allowing state-run Caixa effectively to offload part of its balance sheet and continue growing lending at a 50 percent-plus annual pace.
A securities sale could also give foreign investors a new vehicle to participate in Brazil's housing boom, especially in lower-income sectors where growth is highest. Caixa controls about three-quarters of the domestic mortgage market.
Caixa is still negotiating the terms of the deal with Brazil's central bank and finance ministry but plans to offer the securities in the second half of the year, president Jorge Fontes Hereda told Reuters.
"There's a discussion in the market: How is this boom in Brazil going to continue? Does it have a future? Does the funding exist? And it's a valid question," Hereda said.
"One of the solutions we see is for this securitization to happen, and we're moving in that direction," he said.
Caixa has been the main vehicle for President Dilma Rousseff's plan to build at least 2 million housing units by 2014, one of the centerpieces of her left-leaning government.
Private banks are still wary of long-term lending in Brazil, in part because of a history of hyperinflation and financial crises. That makes Caixa virtually the only major source of mortgages for the more than 20 million Brazilians who have joined the middle class in the last decade.
Outstanding Brazilian mortgages were worth only about 3.5 percent of Brazil's gross domestic product in 2010, according to Brazil's central bank. That compares with about 20 percent in Chile, Latin America's most developed mortgage market, and roughly 100 percent in the United States.
Hereda said Caixa already sold about 300 million reais ($190 million) in CRIs, as the securities are known locally, earlier this year to retail investors.
A sale of 2 billion to 3 billion reais in CRIs later this year would be directed at institutional investors such as pension funds and, possibly, foreign buyers, Hereda said.
Caixa is also negotiating with authorities a legal framework to sell so-called covered bonds, an asset widely used in Europe in which lenders issue bonds backed by the future payments from loans. Those loans remain on the issuer's balance sheet, and are therefore considered to be less risky than the mortgage-backed bonds.
Hereda said Caixa is discussing ways to make the assets more attractive, since he said Brazil's benchmark interest rate of 12.25 percent tends to steer investors toward less-risky assets that still offer high returns, such as Treasury bills.
An example of similar debt in the market: a floating-rate CRI issued by Cyrela Brazil Realty, a real estate developer, would pay about 13.5 percent at current market rates -- only 1.25 percentage points more than the benchmark rate.
Hereda said one possibility under discussion with the government would be to give an income tax break for individuals who purchase CRIs to other types of investors. The creation of a bigger secondary market for the securities would also help, he said.
The continued growth of Brazil's mortgage financing will be good news for real estate developers and homebuilders such as Rossi Residencial (RSID3.SA) and Gafisa.
Hereda downplayed concerns of a bubble in the real estate sector or other barriers to continued expansion. Ratings agency Moody's upgraded Brazil's sovereign credit rating on Monday, saying it was more vulnerable to credit risks than some other countries because of its solid banking system.
"For the next four to five years, within the plans the government has set out, we're going to have resources for that," Hereda said. "We're going to continue expanding, that much is certain. The only question is how much."
