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Spain Mortgage Rules Will Impair Housing Recovery, Moody’s Says

Spain’s efforts to revive its broken housing market will be endangered by new regulations on mortgage lenders, according to Moody’s Investors Service.

The government said yesterday it wants to stop banks using mortgages of more than 30 years as collateral in covered bonds that package the loans. With the longer-maturity debt making up 10 percent of the mortgage market, the rules will restrict home financing and hurt existing covered bonds, Moody’s said.

“It creates uncertainty for investors in 400 billion euros ($542 billion) of covered bonds,” said Jose De Leon, a Madrid-based analyst at Moody’s. “It may end up making it harder for banks to sell covered bonds so the flow of credit to families is even more restrictive.”

Economy minister Luis de Guindos announced reforms for the mortgage market this week after loan delinquencies rose to 3.5 percent at the end of September, the highest in at least six years according to the Spanish Mortgage Association. They allow borrowers to cancel debt if they pay 65 percent of an outstanding mortgage over five years after a home is sold at auction, or 80 percent in a 10-year period.

The new measures will reduce the maximum amount of covered bonds that banks can issue, a Madrid-based spokesman at the Economy Ministry said in an e-mailed response to questions. He asked not be named in line with department policy.

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