Cetip Turns to Home Appraisals as Brazil Auto Loans SlowFrancisco Marcelino and Christiana Sciaudone
Cetip SA-Mercados Organizados is offering banks the ability to appraise homes electronically for the first time, a step toward a national database needed to develop Brazil’s nascent mortgage-backed securities market.
The company, Brazil’s biggest clearinghouse, is rolling out an appraisal platform this week for Itau Unibanco Holding SA, the country’s largest lender. Built in partnership with FNC Inc., the system will standardize and automate appraisals that are now based on informal surveys and take about 90 days. Rio de Janeiro-based Cetip plans to turn the platform into a lien registration business, replicating its strategy for vehicle loans, which generated 35 percent of second-quarter revenue.
“For our business, which is to create integration platforms for the financial system, it’s a market that has a lot of opportunity to be explored,” Chief Operating Officer Mauro Negrete said in an interview at Cetip’s Sao Paulo office.
Home lending in Brazil, which grew twice as fast as all credit in the past year, is poised to spur banks to securitize mortgages to meet capital requirements. Cetip’s product will help develop that market because appraisal data for securitized collateral will be centralized, according to Banco Safra SA, while producing crucial new revenue as auto lending declines.
A central bank resolution published in May 2012 requires banks to register home liens in a nationwide database. No deadline has been set. The central bank said the topic is under discussion, declining to elaborate. Itau didn’t return phone and e-mail requests for comment.
Cetip is likely to face competition from BM&FBovespa SA in mortgage lien registration, according to Negrete. BM&FBovespa runs the stock and futures exchanges and also provides registration, clearing and settlement services. The Sao Paulo-based company declined to comment in an e-mailed statement.
Because of Cetip’s work with home loan appraisals, it’s a strong candidate to register real estate liens in a nationwide database, Carlos Macedo, a Sao Paulo-based analyst at Goldman Sachs Group Inc., said in a telephone interview. It’s unclear when the business will generate meaningful revenue, he said.
Cetip fell 0.5 percent to 24.73 reais at 11:02 a.m. in Sao Paulo. The shares dropped 2.1 percent this year through yesterday, compared with an 11 percent slide for the Ibovespa benchmark index and a 7.6 percent decline for BM&FBovespa. Nine analysts rate Cetip’s stock a buy, four have it as a hold and one says sell, according to data compiled by Bloomberg.
Home loans are expanding at a rate of about 40 percent a year thanks to economic growth that brought 36 million people into the middle class from 2002 to 2012 and a government housing program called Minha Casa Minha Vida. Residential mortgages totaled 560,000 last year, compared with 7 million car loans.
As home loans expand, financial institutions from Itau to Banco Bradesco SA, Latin America’s second-largest bank by market value, have been reducing auto lending after payments overdue more than 90 days reached a record 7.2 percent in June 2012, according to the central bank.
For the first time, outstanding home loans in Brazil last year passed those of vehicles, with 255.4 billion reais ($116.9 billion) versus 210.9 billion reais for cars, the central bank data show. Car loans fell about 4.2 percent to 233.2 billion reais in September from a year earlier, according to the data.
“At some point, banks won’t be able to carry home loans at their books and will have to securitize a portion of those,” said Marcelo Michalua, a partner at Sao Paulo-based RB Capital Securitizadora SA, which has sold 12.6 billion reais in real estate-backed securities since 2001. “Cetip’s new tool will help to disseminate real estate-backed securities in Brazil as it helps the secondary market to gain in efficiency.”
Revenue growth from the home appraisal business will accelerate once Cetip can create a base upon which to structure asset-backed securities tied to homes, COO Negrete said. Real estate-backed securities, including mortgage loans and lease receivables, rose 35 percent to 40.3 billion reais as of Oct. 28, according to Cetip.
Home appraisals can take as long as 90 days to complete because paperwork must pass through the notary system known as cartorios, and appraisal tools such as databases are lacking, Negrete said. Standard evaluation forms are complemented by informal steps to determine home values, such as surveys of doormen, neighbors and owners of nearby bodegas.
Cetip’s initiative is promising because it would help banks cut costs, said Francisco Kops, an analyst at Banco Safra, said in a telephone interview from Sao Paulo.
“There is an enormous amount of inefficiency in communication between banks and cartorios,” said Kops, who rates the shares the equivalent of a buy. “Sometimes you have three different appraisals in the same building being done by three different banks.”
FNC, Cetip’s U.S. partner, wants to replicate in Brazil the work it has done domestically, from helping banks process mortgages to developing databases and creating analytics, Chairman and Chief Executive Officer Bill Rayburn said.
Itau, based in Sao Paulo, is the only bank participating so far. Cetip and Oxford, Mississippi-based FNC expect at least one other bank to join the platform by the end of this year and another four to be signed on in 2014, Rayburn said.
“We have great visibility into the data underlying transactions,” Rayburn said in a telephone interview. “Our goal is to help the banks build that in Brazil.”