The object of this law is to raise foreign funds from the construction sector through the issue of mortgage bonds.

Mortgage bonds are instruments bearing enforceable rights through which the holder receives a fixed or adjustable yield on a periodic basis and the right to reimbursement of capital in a stipulated term.

Mortgage bonds must be secured by:

a) The capital and reserves of the Financial Institution subject to the control of the Superintendency of Banks;

b) A set of mortgage-secured loans with gradual debt redemption through the issue of mortgage bonds;

c) By immovable assets mortgaged in favor of the issuing Financial Institution.

Mortgage bonds are issued to a named individual, “to the order of” or “to bearer”. They are issued in denominations of one hundred U.S. dollars or the equivalent thereof in any currency other than the legal tender. Mortgage bonds cannot be issued for sums less than US$5,000.00.

The term of Mortgage Bonds cannot be less than one year or over thirty years. They are traded at the stock exchanges of Ecuador.

Legally organized banks, savings and loans, cooperatives and financial companies under the control and supervision of the Superintendency of Banks are authorized to issue mortgage bonds.

Mortgage bonds backed by immovable assets owned by the issuing financial institution and their related parties cannot be issued.

When a dividend payment is overdue, the Financial Institution may charge on the capital payment the maximum default interest permitted by Law in effect at the time of payment.

In the case of gradual redemption debt backed by Mortgage Bonds, all risks insurance must be placed with respect to mortgaged buildings. For borrowers who are natural persons, disencumbrance insurance must also be purchased. The issuing financial institution is required to place insurance with insurance company legally established in Ecuador. The debtor is required to pay the cost of the insurance.

When payment of dividends are 60 days’ overdue, Financial System Institutions can demand of all or part of the following:

a) The balance of the loan or reduced capital cut at the date of the last overdue dividend, with the maximum default interest permitted for capital up to debt payment;

b) Agreed Commission

c) Insurance premiums paid by the financial institution; and,

d) Litigation expenses.

Mortgage Bonds shall be issued on printed paper that visibly states the following:

- name of the issuing financial institution

- face value of the bond

- series number

- order number

- interest rate

- date of issue

- redemption rules

- Reference of immovable assets backing the loan and mortgage, with information concerning registration with the appropriate Property Registry.

- Other information, depending on the nature of the bond.

Each mortgage bond must attach coupons stating the name of the Issuing Financial Institution, series number, mortgage bond number, interest rate, semester and date of payment.

In each case the Law or a court resolution demands a bond to fulfill a public office or to perform a public contract or a legally required bond or deposit, mortgage bonds at their market value will be accepted. Furthermore, bonds that must be issued in cash and court deposits to be made in cash can also be made in the form of Mortgage Bonds so long as they will mature in less than one year.

Financial institutions can purchase, own and sell their own mortgage bonds and use them for legally required deposits in guarantee, but cannot exchange them at the Central Bank of Ecuador. Mortgage bonds can also be acquired through dation in payment or awarded by the court to repay loans to financial institutions. In any case, mortgage bonds must be placed back in circulation within a year of their acquisition. All of these types of negotiations are made through the stock exchange.