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Bank of Spain Sees More Defaults as Rajoy Seeks Fewer Evictions

Nov. 5 (Bloomberg) -- Spain’s bad-loan ratio will continue to increase, the Bank of Spain said, as the government considers changes to mortgage rules that the regulator credits with keeping down home-loan defaults.

Given forecasts for a continued economic contraction in 2013, “it is to be expected that the increase in bad loans continues,” the Bank of Spain said in its financial stability report today. The default rate for individual home mortgages was 3.1 percent in June, compared with 7.5 percent for non-home loans and 16.8 percent on company borrowing.

The Bank of Spain said the nation’s legislation, which leaves homeowners on the hook for their debts even after a foreclosed property is sold, has held down the default rate. Still, Prime Minister Mariano Rajoy’s government is considering changes to mortgage rules as the number of people losing their homes surges and the government faces mounting street protests for bailing out banks while imposing cuts on taxpayers.

Deputy Prime Minister Soraya Saenz said last week the government has set up a working group to try to prevent people losing their homes for defaulting on their mortgages. The government wants to take measures “as soon as possible,” she told reporters after the weekly Cabinet meeting.

Carlos Floriano, the third-most senior official in the ruling People’s Party, said the “dramatic situation” should be resolved, declining to give details even as he said that the 10 month-old government has done things in other areas “that no other government has dared do.” Maria Dolores de Cospedal, the party’s deputy leader, told state broadcaster RTVE that there were many options to be considered to address the issue.

Around 400,000 homes have been foreclosed on in Spain since the nation’s decade-long real estate boom ended in 2008, according to AFES, an adviser to homeowners facing repossession. Homeowners are coming under increasing pressure as the unemployment rate, already Europe’s highest at 26 percent, continues to grow, while tax increases and rising prices erode households’ income.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at

To contact the editor responsible for this story: Craig Stirling at

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