New Homes to Thousands of Vulnerable Ecuadorian Families

Through the structuring and financing of a mortgage portfolio securitization mechanism, CAF—development bank of Latin America—supports Ecuador in developing a housing policy with the “Casa Para Todos” (“Housing for All”) project, through which low-income families gain greater facilities to access mortgage loans, at an interest rate (4.9 percent) lower than market rates (9 percent on average).  

The project is a reality thanks to the collaboration between CAF and the government of Ecuador. With a USD 68 million contribution from the central government, as well as a CAF credit in the amount of USD 70 million, the country’s Ministry of Urban Development and Housing (MIDUVI), constituted the commercial trust “Emblematic Housing For All Housing Project.”

The funds deposited in the trust are earmarked for the partial purchase of the home mortgage portfolio issued by a variety of financial sector institutions. This placement target is USD 363 million, which means that with an investment of USD 138 million, the government catalyzed some USD 225 million in portfolio funds. The funds are expected to benefit some 5,000 families.

“The establishment of the public trust with the participation of CAF built the trust necessary for the securitization process to become feasible and today it is operating successfully,” CAF representative in Ecuador Daniel Rivera said. “The securitization scheme will help foster a greater flow of resources, as well as optimize the quality and impact of investments to benefit social equity and promote the revival of the construction and housing sector.”

The feasibility of the securitization process is ensured by the mortgage guarantees held by the assets on which the credit securities are issued. The public trust, through holding trusts constituted by each financial agent, transfers a portion of their portfolio, while such companies receive senior credit content titles.

In addition to the liquidity injection, the incentive for credit entities to participate in the “Housing for All” program is that they receive a return on the securities they acquire, at least equivalent to that they would receive in a normal mortgage portfolio placement, and with shorter terms. In turn, the government acquires the longest-term subordinate securities. 

Once all mortgages have been paid, the government begins to receive its capital payments. This makes a substantial difference when comparing the traditional practice of allocating government subsidies, since, under the securitization scheme, the government stimulates its subsidized housing policy of and, in addition, obtains profitability, by recovering all the funds transferred to the public trust, thus ensuring the sustainability of the financial scheme.