Brazilian banks are likely to issue fewer mortgage loans in 2016and see rising default rates amid the country's deep recession, Moody's said.
"Brazil's real estate market will remain weak as the nation'srecession hits consumer confidence while at the same time
Moody's also believes banks will have to consider alternativefunding sources to support loan origination, due to savings deposits declining amidthe recession. Caixa Econômica Federalin particular faces the most pressing need to turn to other funding sources, sincethe value of its mortgage book far exceeds the value of its savings deposits, Moody'snoted.
Against this backdrop, Moody's added that the covered bonds marketmay become an important source for mortgage funding. "Letras Garantidas, whichare issued by financial institutions and are backed by pools of real estate loans,will eventually offer a low-cost, long-term funding alternative for home lenders,"Moody's vice president and senior analyst Daniela Jayesuria said in a statement.