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The lure of Brazilian mortgages

Mortgage securitization by Brazilian banks has huge potential as the mortgage market is still worth only 2.2% of GDP.

The notoriously weak mortgage market in Brazil finally looks ready to grow. The first RMBS transaction done by a local bank securitizing its own mortgage portfolio should be the first of many similar transactions.

In August, ABN Amro’s Brazil subsidiary, Sudameris, took the plunge and issued a R$100 million ($51 million) RMBS. This made it the first retail bank to securitize its own portfolio of mortgages. Several RMBS have already been issued in Brazil, although always by real estate developers, not banks. Caixa Econômica Federal, a government-controlled bank, should be the second to issue, as it plans to bring its inaugural transaction to the market by the year-end. Despite the market turbulence, these deals are expected to sell well and it is hoped that this will encourage more retail banks to bolster their mortgage exposure.

An improving macroeconomic environment is supporting these transactions. The interest rate has fallen markedly over the past few years and now stands at 11.25%, the lowest in a decade and a far cry from the 45% following the financial crisis of 1999. High interest rates left the mortgage market floundering throughout the 1990s and early 2000s. That hasn’t stopped the government from trying to encourage its growth.

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