Mortgage Restructuring System

On November 6, 2003, Congress passed Law No 25,798 (the “Law”). The Law was implemented on December 22, 2003, by Decree No 1284/03 (the “Decree”) and, on March 16 and 23, 2004, by Communications “A” 4117 and 4120. The Mortgage Restructuring System was created to restructure certain overdue mortgage loans for families with only one home. The system includes mortgage loans with any type of creditors (including financial institutions, notary publics, real estate companies, etc.) and whose debtors are individuals or their heirs acting jointly.

Through the Mortgage Restructuring System the mortgage loans that are eligible, and whose creditors or debtors (depending on the case) choose to join the system, will be paid by the Mortgage Restructuring Trust. The trust will assume the position of creditor before the debtors, granting them better conditions for payment.

1. Conditions

The requirements for a mortgage loan to be considered eligible are related to the debtor (individuals or their heirs acting jointly) and to the destination of the loan (purchase, improvement, construction and/or expansion of the family’s only home). However, it is not necessary to be a creditor.

The provisions of the system establish some additional conditions:

(i) the amount of the loan, according to the original agreement, should be less that AR$ 100,000 (if the loans were granted in foreign currency under the Convertibility Law, the exchange rate will be US$ 1 = AR$ 1); and

(ii) the loans became overdue between January 1, 2001, and September 11, 2003, and must remain overdue. The term “overdue” is defined as the default by the debtor that allows the creditor to file an executive claim. Payments made by the debtor that do not imply a regularization of the loan do not constitute an impediment for the loan to be considered eligible.

Incorporation to the system is optional. In the cases the loan was granted by a financial institution, the creditor is the only one allowed to choose. This is because financial institutions that choose to incorporate their credits into the system will receive bonds as payment. On the other cases, both the creditor and the debtor are allowed to choose. The Decree also sets forth the possibility of adhering to the system of financial trusts when underlying assets are mortgage loans.

The Law and the Decree list the documentation that the creditors must file in order to join the system. If the debtors are the ones to choose the incorporation into the system, they must file a sworn statement with a detail of the family income and execute a loan agreement with the Mortgage Restructuring Trust in order to define the teLuisllllrms of the new loan.

Communications “A” 4117 and “A” 4120 of the Argentine Central Bank established the terms and conditions the financial institutions must comply with in order to join the system.

2. Mortgage Restructuring Trust

The Law created the Mortgage Restructuring Trust, and the trustee shall be the Banco de la Nación Argentina. The trust’s assets shall include contributions from the Fondo Fiduciario para la Reconstrucción de Empresas (Businesses Reconstruction Fiduciary Fund), the Ministry for Social Development and the Fondo Nacional de la Vivienda (Argentine Housing Fund), among others.

The trustee shall cancel any overdue debt of the mortgage loans by paying any principal installments overdue, while not considering that the creditors shall not receive any amounts corresponding to interest, expenses or fees:

(i) to those creditors which are financial institutions, by means of the delivery of bonds to be issued by the trustee in accordance to the following conditions: a) 60% through a bond denominated in Pesos with a two-and-a-half-year term and an interest rate of 2%; and b) the remaining 40% through a bond denominated in Pesos with a ten-year term and an interest rate of 5%; and

(ii) to other creditors, in cash or by means of the delivery of bonds, at their choice.

Regarding the remaining outstanding debt the trustee, in all cases, shall issue bonds for the amounts and terms of the original mortgage loan, which shall not include any amounts corresponding to insurance or administrative expenses. The delivery of such bonds shall entail the final payment of the debt. Under no case shall the trustee pay any amount greater than the market value of the real estate property related to the mortgage.

As a consequence of the final payment of the debt, the trustee shall acquire all the original creditor’s rights, actions and guarantees. The Law and the Decree outline the guidelines for the new mortgage loans, which the trustee shall agree upon with the debtors. Among the terms established the most outstanding are the granting of a one-year grace period (which may be renewed) and the setting of a monthly instalment in accordance with the debtor’s family group income.

3. Term

The term to exercise the option to join the system was originally set at 60 business days as from the issuance of the Decree. Such term elapsed on March 23, 2004. However, on that same date, Decree No 352/2004 extended the original term for another 60 business days. Finally, the Argentine Central Bank issued Communication “A” 4123, extending, the term for the filing of the information originally set forth by Communications “A” 4117 and “A” 4120 until June 22, 2004.