Great article from NuWire Investor. Here are the highlights:
The situation in Brazil is not dissimilar to the recent US experience, argue worried analysts. Mortgage credit is being pushed by banks to homebuyers, especially to low and mid-income first-time homebuyers who are very sensitive to interest rate movements. However while in the US, mortgage loan rates were very low, in Brazil interest rates are high, which arguably poses even more danger.

Now, as interest rates go up in Brazil, many analysts worry about the ability of first-time homebuyers to finance their mortgage loans. From 2007 to 2010, real credit to the private sector soared by nearly 200% in Brazil, according to the IMF. In 2011, big banks in the country expect 20% growth in loans.
In Brazil, consumers’ debt service burden now stands at 24% of disposable income. As interest rates increase, the debt service burden of consumers is expected to rise to an exorbitant 30% in 2012, according to Paul Marshall of Marshall Wace. a London-based investment fund. In comparison, US consumers, regarded as being over-leveraged, had a debt service burden of 14% of disposable income when the US sub-prime mortgage crisis erupted.
Roberto Attuch of Barclays Capital Sao Paolo estimates that the residential real estate debt of average mortgage-holders in Brazil rose from 25% of income in June 2006, to around 40% in November 2010. In April 2011, two small banks in the country were bailed out. Some analysts expect that more banks will declare bankruptcy in the coming months. Alert to the danger, the country’s central bank, Banco Central do Brasil, has been fast in introducing measures to curb consumer credit and foreign loans.”
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