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New Ecuador law forgives mortgage debt

Published:Sunday | May 20, 2012 | 12:00 AM

Ecuador's legislature has passed a bill that would require banks to forgive any outstanding debt on mortgages for first-time homebuyers of properties worth up to US$146,000 if they default and forfeit the home.

The measure, aimed at discouraging a real estate bubble of the type that has caused so much pain in the United States and Europe, won praise from many Ecuadoreans on Wednesday. The country's banking industry did not immediately comment.

Approved Tuesday evening by a 68-21 vote, the bill also covers loans by banks to first-time purchasers of automobiles that cost up to US$29,200.

President Rafael Correa, a leftist economist whose social spending has made him widely popular, praised the legislation but did not say whether he would sign it or possibly seek amendments.

The president, who constantly rails against Ecuador's "oligarchs" and has already moved to diminish the power of banks, accused the lawmakers who voted against the measure of "defending the bankers, not the depositors."

The law appears to be unique.

San Diego State University economist Michael Lea, a real estate specialist, said the only similar measure he was aware of was the creation of a national housing bank by the leftist Sandinista movement in Nicaragua after it won power in 1979.

Pablo Davalos, an economist at Catholic University, said the move would be good for most Ecuadoreans.

- AP