Government proposes that property can be pledged as collateral in more than one loan

The government sent a bill to Congress this Thursday (25th) with the aim of allowing real estate and other assets – even in financing terms – to be given as collateral for more than one loan.

The proposal makes the so-called fiduciary sale of the property more flexible (a financing modality in which the buyer transfers the asset to the financial institution that finances it, as a form of guarantee), allowing the asset to be used as collateral in different operations.

The text also authorizes the creation of so-called guarantee management institutions (IGG), companies that will be authorized by the Central Bank to “split” assets into different credit operations — including, in different banks.

According to government technicians, the guarantee can currently support only one credit agreement until the debt is paid off.

With the changes, those who have a property under financing can use it for other loans at the same bank. To use the IGG, it will be necessary to transfer the asset as collateral to the institution — which will be able to use the asset for operations in several banks.

The IGG would behave as a guarantor and would be responsible to the banks in the event of default (it could suspend all the debtor’s operations and collect debts in advance).

Adolfo Sachsida, secretary for Economic Policy, stated that the measures will unlock the use of guarantees — which today are, to a large extent, in the hands of banks.

“You go to the bank, buy a house for R$ 100,000, borrow R$ 10,000. The entire house is guaranteed by the bank. This is wrong, the bank guarantee has to be R$ 10,000. The others R$90,000 is yours,” he said, at a ceremony at the Planalto Palace to announce the measure.

According to Sachsida, the fractioning of assets will facilitate credit and reduce interest charges in the market. “It is a very big advantage for the worker and for the entrepreneur,” he said.

The presentation of the bill was not accompanied by the full disclosure of the text. According to the government, the IGGs cannot be financial institutions or offer credit and will operate to be regulated by the CMN (National Monetary Council).

The text also provides for the extrajudicial foreclosure of mortgage-backed credit, regardless of contractual provision.

The proposal also regulates the activities of the guarantee agent, which may establish, register, manage and judicially enforce guarantees and, when authorized by law, promote extrajudicial execution.

According to the government, the text of the bill also includes the breaking of Caixa’s monopoly on pledges and the forecast that the CMN may remove the minimum term requirements and conditions for early redemption of Letras Financeiras.

Another point takes away the exclusivity of Caixa and Banco do Brasil in the operation of the Fundeb payroll (Funding for the Maintenance and Development of Basic Education and the Valorization of Education Professionals). This will open the way for states and municipalities to bid the payroll to other banks and obtain revenue of R$ 4 billion in the coming years, in government accounts.

“The measures provided for in the bill seek to improve the confidence of the guarantees provided to credit operations, facilitating their realization. In this sense, the measures provided for have the potential to leverage credit at the national level, and, therefore, contribute to the development of the Brazilian financial market,” says Palácio do Planalto, in a statement.

Febraban (Brazilian Federation of Banks) stated that it received the announced measures with optimism.

“The proposal presented by the government has the merit and the potential to expand guarantees, which is an inclusive measure”, states a statement from the organization. “More families and companies will have the opportunity to offer guarantees in their credit operations and thus expand their ability to borrow at lower rates,” says Febraban.

Main points of the bill

• Property under financing may be used to guarantee more loans at the same bank (so-called extension of fiduciary sale, a financing modality in which the buyer transfers the asset to the financial institution as a form of guarantee)
• Real estate and other assets may be used for loans at different banks through the Guarantee Management Institutions – companies to be created by the project, which will provide the client with a list of partner banks that will offer the loans
• Removes the exclusivity of Caixa and Banco do Brasil in Fundeb’s payroll operation, opening the way for it to be tendered to other banks (through states and municipalities)
• Removes Caixa’s monopoly on civil pledge of assets