Spanish Banks Hit Recovery With Discriminatory Loans: Mortgages

Spanish Banks Hit Recovery With Discriminatory Loans
A pedestrian crosses the road against the backdrop of residential apartments at an urban property development in Madrid. Spain's home values have fallen by about 17 percent since the country’s residential property market peaked in the first quarter of 2008. Photographer Denis Doyle/Bloomberg

Spain’s banks, saddled with 329,000 foreclosed homes, are still willing to provide mortgages, as long as the borrower wants to buy one of their properties, according to a consumer-rights group. That’s no help to homeowners and developers seeking to sell.

Members of the group, Organización de Consumidores y Usuarios, or OCU, applied for mortgages at 46 bank branches in Spain in August and September to buy privately-owned homes. In every case, the lender tried to persuade the prospective borrower to purchase one of its own properties instead -- either by offering to finance 100 percent of the price or by refusing to lend for another home, spokeswoman Ileana Izverniceanu said.

“People end up buying from the banks because they have no alternative,” Izverniceanu said in an interview at her office in Madrid.

The Bank of Spain has encouraged lenders to sell real-estate assets now rather than wait for the market to recover from a four-year decline. By offering mortgages selectively, the banks may prolong the slump by discriminating against other property sellers and keeping prices artificially high, Izverniceanu said.

“Prices aren’t adjusting to reality and that’s damaging the recovery of our housing market and economy,” Izverniceanu said.

Entering Recession

Home values have fallen by about 17 percent since Spain’s residential property market peaked in the first quarter of 2008, the Ministry of Development and Public Works estimates. By contrast, Irish real-estate prices have dropped 46 percent and U.S. values have declined 32 percent from their highs.

Spain, the euro area’s fourth-largest economy, is close to entering a recession, Budget Minister Cristobal Montoro said yesterday, and Moody’s Investors Service, Fitch Ratings and Standard & Poor’s all have the nation’s credit ranking on review with “negative” outlooks as growth slows and Europe’s sovereign debt crisis deepens.

The government sold 9.98 billion euros of bonds at an auction today, almost double the 5 billion-euro target, as Prime Minister Mariano Rajoy seeks to close the budget gap to prevent Spain from becoming being the fourth euro nation to seek aid.

A spokeswoman for the Spanish Banking Association didn’t respond to phone calls or an e-mail requesting a comment. Spokesmen for Banco Santander SA, Spain’s largest bank, and Banco Bilbao Vizcaya Argentaria SA, the second-biggest lender, declined to comment, asking not to be named in line with their companies’ policies.

Real Estate ‘Truth’

Lenders, which have also acquired properties from struggling and bankrupt developers to cancel debt, have as many as 900,000 finished, unfinished and foreclosed homes on their balance sheets, according to Borja Mateo, author of “The Truth about the Spanish Real Estate Market.” In the U.S., with a population almost seven times the size of Spain’s, about 2.1 million homes are in foreclosure, according to Lender Processing Services, a mortgage software and data firm based in Jacksonville, Florida.

By “crowding out” other property sellers, such as real-estate developers and private individuals, banks are causing transactions involving multiple properties to collapse, said Juan Villen, head of’s mortgage service.

“We just saw a chain fall through,” Villen said. “The person who wanted to buy one of the properties in the chain couldn’t get a mortgage because a bank didn’t own the home.”

On a typical day, Idealista advises about 200 people on home loans, Villen said.

Clean Up Banking

Rajoy, who took over last month after a landslide election victory, has pledged to clean up the banking industry at no cost to taxpayers. Lenders have 176 billion euros of what the Bank of Spain calls “troubled” assets linked to real estate, while struggling with rising bad loans and borrowing costs.

Governments are urging European banks to keep lending to companies and individuals while requiring them to raise an additional 114.7 billion euros of core capital by June to weather a deepening sovereign-debt crisis.

Buyers of Spanish homes were granted 44 percent fewer mortgages in October from a year earlier, the 18th straight decline, the Madrid-based National Statistics Institute said last month. The total value of those mortgages fell 41 percent.

Developers Hurt Most

Property developers have been hurt most by banks favoring loans for their own properties. Inmobiliaria Colonial SA, Metrovacesa SA, Realia Business SA and Quabit Inmobiliaria SA, Spain’s largest publicly traded real estate companies, sold just 640 homes during the first nine months of 2011, according to their latest results. That compares with 2,150 in the same period a year earlier and 4,529 at the peak of the housing boom in 2007. In total, 240,673 homes were sold in the first nine months of 2011, according to data from the Ministry of Development and Public Works.

Martinsa-Fadesa SA, a developer whose shares haven’t traded since the company filed for protection from creditors in 2008, sold 717 homes in the nine months through September.

“Often, banks close sales because they offer financing for buyers,” said Jesus Encinar, founder and chief executive officer of “Some of them only offer loans to people who are purchasing their stock.”

Idealista currently advertises 46,233 bank-owned homes in Spain, up from 29,334 in November 2010. It didn’t list any in 2008.

“I’m still surprised that we don’t have many thousands more and that some banks are still asking themselves whether it’s a good idea to publish their properties on the Internet,” Encinar said.

Further Declines

Property values need to decline by an additional 15 percent to 20 percent over the next two to three years to reflect what homes are really worth, according to Fernando Acuna Ruiz, managing partner of Madrid-based mortgage broker Taurus Iberica Asset Management.

Spain’s construction industry accounted for about 18 percent of gross domestic product at the height of the boom, according to a report by management consultants McKinsey & Co. That’s now fallen to about 11 percent, data compiled by the National Statistics Institute show.

Every day in Spain, about 200 evictions take place and banks execute foreclosure orders on a further 273 homes, according to Adicae, a group that represents bank customers.

Financial institutions have foreclosed 328.720 homes since 2007, according to PAH, or, Plataforma de los Afectados por la Hipoteca, a group which campaigns against evictions of home owners. That figure will balloon to as many as 600,000 in coming years as unemployment increases, according to Taurus, which manages 35,000 foreclosed properties for 25 lenders.

Highest Jobless Rate

Spain’s jobless rate of 23 percent is the highest in the euro region and growth in the country will slow to 0.25 percent this year from 0.7 percent in 2011, according to a Bloomberg survey of economists.

Idealista’s Villen says that banks will offer their customers 100 percent mortgages and other favorable terms until they’ve offloaded their stock of foreclosed homes.

“They are simply kicking the can down the road and that shouldn’t be allowed as it may come back to haunt them,” he added.

Banks should never grant a mortgage that exceeds 80 percent of a property’s value, according to Jordi Fabregat, a professor of management and financial control at Esade, a Barcelona business school. Monthly mortgage repayments shouldn’t be more than 30 percent of an individual’s monthly income, he said during a telephone interview.

“These were two red lines that banks here happily crossed time and time again during the boom and this is what led us to our Spanish subprime.”

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