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Ecuador Mortgage Law Raises Risks for Banks, Robalino Says

A bill passed by Ecuadorean lawmakers that would limit borrowers’ liability should they default on mortgages would reduce home lending and raise risks for lenders, according to the country’s biggest banking association.

The measure, which allows homeowners to cancel outstanding debts by forfeiting their houses, gives consumers incentives to not pay their obligations, Cesar Robalino, executive president of Ecuador’s Private Bank Association, told reporters today in Quito. The association will ask President Rafael Correa to veto parts of the bill, which was passed May 8, he said.

The new rules would apply to first-time home buyers whose dwellings are valued at as much as $146,000. They also would allow Ecuadoreans to settle automobile loans of as much as $29,200 by handing over the vehicle. Correa said April 28 the bill was necessary to end lenders’ “criminal abuse” of citizens.

“It creates moral risk and stimulates a culture of not paying debts,” said Robalino, a former finance minister during three administrations in the 1980s and 1990s.

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