Span­ish mort­gage fore­clo­sures will de­crease, eas­ing losses in RMBS deals, says Moody’s

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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