Sunday, November 27, 2011

Analysis: The loans are coming!

Analysis: The loans are coming!
By José Manuel Pallí

Since Cuba published the recent changes to its housing laws allowing
resident citizens to sell their homes, the talk in Miami — especially
among those who feel an urgent call to give a negative spin to any news
from Cuba — has turned around questions like, 'Where are the home
sellers going to live?'

So when I heard about Cuba's new lending system, while waiting in line
for the doors to one of our glorious bazars to open up this abbreviated
Thanksgiving Day, the first thought that came to my mind was we now had
yet another reason to worry: Where will those Cubans who lose their
homes to the bank go?

Of course, the geography around me helped dispel most of my own
concerns: Here we are, in Miami — a city which has a legitimate claim to
be the natural host for our next reality TV show, 'Foreclose America,'
in a state of Florida where our courts of law are hooked to a life
support system dependent on foreclosure filing fees, where jobs are ever
more scarce, and yet nobody is deprived of his/her constitutional right
to shop, maxed credit card or not. And obviously, they must have some
place to keep all this new stuff they are buying — with even some space
to spare for a bed or sleeping bag.

But it turns out we need not worry at all about the more recent
changes in Cuba's laws, since the lending now approved cannot lead to
the foreclosure of any Cuban's main living quarters.

Decreto Ley No. 289/2011 adopted by the Cuban Council of State (Consejo
de Estado) on Nov. 16, and which will be in effect on Dec. 20, deals
with "Loans to natural persons and other bank services" (De los créditos
a las personas naturales y otros servicios bancarios) and contains (in
its Article 3) a short list of those natural persons (meaning individual
borrowers, and banning corporations from borrowing under these rules)
now authorized to contract for loans with authorized Cuban banks. The
same threesome authorized for channeling real estate (or housing)
transactions are thus far authorized by the Cuban Central Bank to offer
these loans: Banco Popular de Ahorro, Banco de Crédito y Comercio, and
Banco Metropolitano S.A. — see Resolución No. 100 del Banco Central de
Cuba, Cuba's Central Bank.

Last, but not least, in the Article 3 list of approved borrowers (in
item e), there is an open category: Those who need to purchase articles
(for personal consumption, I assume, since the law reads "para su
propiedad personal — a code word for socialist property rights — o
satisfacer otras necesidades…"). The loans to this category of persons
will only be gradually implemented, to the extent the economic and
financial conditions on the island justify them (Article 3 (e) of DL
289/2011). I cannot wait to read about how this is not a meaningful change …

Other meaningful changes are found in Article 11, which allows for the
funding of credit cooperatives (cooperativas de créditos y servicios),
and in Article 12, in this case because it appears to hint a change of
attitude from the Cuban government, or so I hope. Article 12 opens the
door for the Cuban state itself to support the credit needs of the
incipient private sector: Those who need a loan to buy construction
material or hire construction workers to build or improve the premises
where their businesses operate — in many cases rented to them by the
Cuban state — will be able to use those state-owned premises to secure
their loan.

However, the Valium for those who lose sleep over the looming crisis of
Cuban homelessness the coming home-selling spree may cause is found in
section 2 of Article 13. This provision makes clear that no Cuban's home
is likely to end up in any creditor's hands. The only real estate assets
owned by Cuban individuals allowed as collateral for the loans they may
take are their one and only vacation homes, which not many Cubans own,
and vacant or unimproved lots (solares yermos), which, as I understand
it, even fewer Cuban individuals are likely to own.

This little anecdote may serve to further assuage our fears (a sip of
chamomile tea to go with the Valium). Over the years and due to the
nature of my business, I have followed closely the several processes
whereby the occupants (squatters) of mostly public land in the
underdeveloped world are given "formal" titles to it. Those who have
promoted these 'formalization' processes are often chastised because,
contrary to their expectations, the number of loans secured by these
newborn titles is almost imperceptible. Curious about what the reason
behind this trickle of loans to the inhabitants of shanty towns (favelas
in Brazil, villas miserias in Argentina, pueblos jóvenes in Peru), and
ready to blame the banks for not lending to them, I got the answer from
a bright lawyer then running the Commission for the Formalization of
Property (COFOPRI) in Lima, Peru. She explained that most of the new
title holders she dealt with, a majority of them humble Andean peasants
attracted by the big-city lights, were not eager to risk their titles —
which they often framed and hanged from a wall, alongside the images of
saints and crucifixes — for obtaining credit they often needed. When you
told them the price to pay for their inability to repay the loan was the
forfeiture of their home, they looked at her as if she was some kind of nut.

To be sure, this clash between the cleverness of our financial wizards,
so prone to risk taking – which, as it turned out, is often risk free —
and the wisdom of ancestral cultures, can be read in many ways. However,
I cannot help but think of so many among us who entered into
"sophisticated" loan agreements – balloon mortgages, ninja loans, and so
on — without properly gauging or even understanding their potential

This is not to say that they would have passed on those loans if they
had been prudent and diligent enough — or even if an independent
third-party lawyer, like a Civil Law Notary, had been at hand at closing
time to help them understand what they were getting into. The magnet
from our glorious bazars could have still been too much.

José Manuel Pallí is a Cuban-born member of the Florida Bar, originally
trained as a lawyer in Argentina. He is president of Miami-based World
Wide Title

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