Spain sui­cides spark evic­tion law risk­ing bank losses

The Pak Banker - - Front Page -


Spain, re­spond­ing to street protests and re­ports of sui­cides linked to fore­clo­sures, in­tro­duced rules to help pro­tect fam­i­lies from evic­tion, in­creas­ing the risk of cred­i­tor losses and weak­en­ing an al­ready frag­ile bank­ing sys­tem.

Banks won’t be able to re­move fam­i­lies who can’t pay their mort­gages for two years, Deputy Prime Min­is­ter So­raya Saenz de San­ta­maria said Fri­day af­ter the gov­ern­ment’s weekly Cab­i­net meet­ing in Madrid. The rules ap­ply to house­holds earn­ing less than 1,597 eu­ros ($2,041) per month com­bined with cer­tain other condi- tions such as young chil­dren in the prop­erty.

Spain is try­ing to bal­ance the threat of so­cial un­rest with pro­tect­ing the banks, four of which have been na­tion­al­ized. While the rule is de­signed to help the poor with­out trig­ger­ing a larger rise in non­pay­ments it may in­crease the size of the na­tion’s bank bailout and harm the in­ter­ests of Euro­pean lenders with $110.4 bil­lion of ex­po­sure to Span­ish lenders.

“It seems clearly meant for ex­treme cases and is sup­posed to not overly di­lute the rights of banks,” said Bernd Volk, the head of cov­ered bonds and agency re­search at Deutsche Bank AG. “How­ever, it seems dif­fi­cult to as­sess the prac­ti­cal rel­e­vance as any­one can prob­a­bly claim that some cri­te­ria ap­ply and stop pay­ing the mort­gage.”

The gov­ern­ment passed the law un­der royal de­cree af­ter 400,000 homes have been fore­closed on in Spain since the col­lapse of the prop­erty boom five years ago. Prime Min­is­ter Mar­i­ano Ra­joy said this week he would rush through mea­sures af­ter Amaia Egana be­came the sec­ond per­son in the past month to com­mit sui­cide in Spain over an evic­tion when she leapt to her death from her apart­ment in Bara­caldo as of­fi­cials ar­rived to change the locks on Nov. 9.

Un­der the terms of the agree­ment, fam­i­lies that aren’t pay­ing their home loans also have to meet an­other con­di­tion to qual­ify. These in­clude hav­ing at least three chil­dren; hav­ing one child un­der three; hav­ing a dis­abled de­pen­dent to look af­ter; be­ing a sin­gle par­ent with two chil­dren or a vic­tim of do­mes­tic vi­o­lence; or be­ing un­em­ployed and not re­ceiv­ing ben­e­fits.

“There seem to be loop­holes which could be ex­ploited, which in turn could fi­nally trig­ger a rise in non-per­form­ing mort­gage losses, ac­cord­ing to Volk, who is based in Zurich. This is expected any­way tak­ing into ac­count Spain’s very high un­em­ploy­ment, he said.

The gov­ern­ment will also ne­go­ti­ate with banks, in­clud­ing state-con­trolled lenders, so that they make avail­able fore­closed homes they own to a fa­cil­ity that will rent them at low costs to peo­ple who have lost their homes, Econ­omy Min­is­ter Luis de Guin­dos said.

The new mea­sures won’t cause an in­crease in the bad loan ra­tio for mort­gages, De Guin­dos said dur­ing a press con­fer­ence in Madrid yes­ter­day. The rate is cur­rently at 3.1 per­cent, ac­cord­ing to the Bank of Spain.

“Of course these mea­sures could pro­duce a jump in de­faults by fam­i­lies who think they are bet­ter off not pay­ing mort­gages and they know they can’t be evicted for two years,” said Fer­nando Ro­driguez de Acuna Martinez, a part­ner at Acuna & Aso­ci­a­dos, a real es­tate con­sult­ing firm in Madrid. “This is go­ing to bring more prob­lems than so­lu­tions.”

The Span­ish Bank­ing As­so­ci­a­tion said in a state­ment on its web­site that it shares the gov­ern­ment’s de­sire to pro­tect the most vul­ner­a­ble peo­ple in so­ci­ety that are most ex­posed to the ef­fects of the eco­nomic cri­sis. The as­so­ci­a­tion said it also has to un­der­line that the fi­nan­cial cost of the mea­sures will be borne solely by the banks.

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