Spain’s Three Main Parties Vote to Ease Foreclosure Rules

Spain’s three largest parties backed a resolution in Parliament to help mortgage-holders facing foreclosure, after nationwide protests called for protection for homeowners from banks after the collapse of the property boom.

Parliament approved today the motion drafted by the ruling Socialists, the main opposition People’s Party and Catalan group Convergencia i Union that called for an increase to the amount of income that is shielded from creditors’ claims and an increase to the value at which banks take foreclosed homes on to their books, according to the text of the motion, which isn’t binding.

Spaniards protesting in nationwide demonstrations since May have called for easier rules for mortgage-holders who risk losing their homes as the end of a debt-fueled property boom pushed the unemployment rate to 21 percent. Under Spanish law, the bank can claim the difference from the borrower if a foreclosed property is sold for less than the outstanding mortgage, and has access to borrowers’ present and future assets and earnings.

Existing rules have kept the bad-loan ratio on mortgages for homes at less than 3 percent, according to the Bank of Spain, which defends the current system. Finance Minister Elena Salgado said on June 27 that mortgage contracts can’t be changed “retroactively.”

New Mortgages

The proposal also aims to avoid the use of “abusive” clauses in mortgage contracts and encourage public-private initiatives to clear Spain’s excess housing stock at “affordable” prices. It encourages banks to inform clients taking out new mortgages of the possibility of contracts that allow borrowers to cancel the debt by handing over the property. Those contracts already exist, although their use restricts the amount clients can borrow to a lower proportion of the property’s value, Salgado said June 27.

The proposal isn’t binding, but motions that win broad support are often sent back to Parliament to be processed as legislation.

The number of foreclosed properties has climbed 10-fold since the end of the housing boom, property website Idealista estimates. Idealista advertises more than 30,000 foreclosed homes valued at 4.6 billion euros ($6.7 billion) on behalf of 40 banks and savings banks, compared with 3,000 in June 2009.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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