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Argentina: Mortgage reform stymied by short-term capital

A liberalization of the mortgage market in Argentina could lead to a rise in securitizations and the creation of the country’s equivalent of Fannie Mae and Freddie Mac.

By Jason Mitchell

At the end of August, the central bank issued new guidelines enabling banks to provide mortgages of up to 100% loan-to-value on amounts up to Ps200,000 ($64,363) and 90% LTV on sums up to Ps300,000.

Since the country’s 2001 economic crisis, mortgage borrowers have had to provide a deposit of more than 25% LTV, effectively placing home loans off limits for most middle-class Argentines. Last year, lenders wrote Ps2.5 billion of mortgages compared with Ps4 billion to Ps4.5 billion annually in the late 1990s.

The government wants to help tenants – who face rental increases of up to 20% a year – to buy their own homes. It is pressing for the banks to provide mortgages with interest rates of 7.5% (despite annual inflation of more than 11% and current mortgage rates of 15%).

Alberto Saravia, chief executive at Saravia Finance Management in Buenos Aires, says: “The reforms could triple the size of the mortgage market. However, the big problem is the complete lack of long-term capital. Most time deposits are of 30 to 60 days (with interest rates of 7%), but the government wants the banks to provide mortgages of 25 to 30 years.

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