Spanish mortgage foreclosures will decrease, easing losses in RMBS deals, says Moody’s
Spanish RMBS performance will benefit from the stabilisation in mortgage foreclosures, Moody’s Investors Service said in a new report.
“We believe that downward pressure on the performance of residential mortgages is easing, which is credit positive for Spanish RMBS transactions,” observed Alberto Barbachano, author of the report.
“The foreclosure rate has dropped by almost 14% since the peak of the crisis in 2010. We expect that a lower number of foreclosures will be accompanied by a shortening of time to process individual foreclosures, which will benefit transaction performance because the accrual of interest during the foreclosure period affects the severity of note-level losses,” he continued.
Despite the decrease in foreclosures, banks are avoiding selling the assets at a loss, as they are waiting for market conditions to improve. The number of foreclosed mortgages has declined year-on-year in the past two years; by 2.3% in 2014 and by 9.76% in 2013. The autonomous regions of Cantabria, Galicia and Madrid recorded the highest drop in foreclosure cases in 2014. Valencia, Extremadura and Murcia reported a significant increase in the number of foreclosures in 2014, after a drop in 2013.
The Bank of Spain’s data show that Spanish banks’ holdings of repossessed real estate assets increased to EUR 83.4 billion as of the end of 2014. Therefore, a delay in selling properties may expose Spanish securitisation funds to higher loss severities.
The build-up of arrears has slowed down in Spanish residential mortgage-backed securities (RMBS). Delinquencies for more than 90 days decreased to 1.37% in December 2014 from 2.17% in December 2013. Low interest rates and slight economic improvements are driving down delinquencies. New arrears are now building up at a slower pace than old arrears are turning into defaults. We consider that slight improvements in the economy will be supportive of this trend going forward.