Caixa Changes Rules to Property Loans in Brazil

By Stephanie Foden, Contributing Reporter

SALVADOR, BRAZIL – Procuring a home equity loan with Caixa Econômica Federal, Latin America’s second largest government-owned bank (after Banco do Brasil), has become easier now that the institution has reshaped and rebranded its line of property refinancing loans.

Crédito Imóvel Próprio Caixa (formerly Crédito Aporte Caixa) is a line of credit extended to those who use their home equity as collateral, which creates a line against the borrowers’ estate and decreases actual home equity. Since this line of credit does not have a specific purpose, the loan can be used for any expenses, from home repairs to tuition payments.

Under the new rules, customers who did not withdraw the full amount of a loan are entitled to new credit without the burden of going through yet another time-consuming notarization.

That way, if a given customer is extended a loan of R$100,000 but only used R$80,000, six months later that client may claim the remaining R$20,000 or any amount short of that, bureaucracy-free.

As Caixa’s CEO of Customers and Retail Strategy Édilo Valadares told the press, cutting red tape makes the product more attractive: “[The reformulation] is an important advantage as our clients can now make new withdrawals according to their need.”

Caixa Econômica Federal enables a credit of up to sixty percent of the pledge’s value depending on the bank and customer history and type of property offered as collateral, which has to be estimated at a minimum R$30,000 and can be residential, commercial, or even plots of land in urban or rural areas.

Payment installments are deducted monthly from the borrower’s checking account within up to 25 years. Interest ranges from 1.10 percent to 1.49 percent per month, plus the prime rate.

In the first half of November, Crédito Imóvel Próprio Caixa’s portfolio totaled a R$6 billion balance in contracted operations. In that same period, the number of contracts grew by 120 percent, going from little over 38 million to nearly 54 million contracts.

A higher percentage of young Brazilians are buying property: Caixa granted some 57 percent of mortgages this year to customers less than 35 years old. The age of borrowers has declined in recent years and the total number of contracts for those under 35 has now reached a historic 44 percent.

In September of this year, the public bank averaged an outstanding seven thousand signed contracts per day, reaching a total of R$100.1 billion in housing loans in 2013. The value is 35.4 percent higher than the same period in 2012, when about R$74 billion were borrowed, and represents 94 percent of the total mortgages executed by Caixa last year. Caixa estimates it will have lent around R$130 billion in real estate financing by the end of 2013 — 75 percent more than early predictions for this year.

All this lending will not make critics any more comfortable when evaluating the Brazilian property market, as calls of a bubble ready to burst in key markets like Rio de Janeiro have in the past been countered by the relatively low level of credit used.

Already a survey from August 2012 showed that almost sixty percent of Brazilians use their monthly salary to pay off “installment debt,” although most debts were short-term: 78.4 percent had installment repayment plans of six months or less, and only 10.1 percent had taken out plans for twelve months or more.

Research in May 2011 highlighted reports that Brazil’s economic growth is largely being fueled by credit markets. The research by APAS (Paulista Association of Supermarkets) shows that 53 percent of all Brazilian families are spending more than they earn.