Spain’s governing People’s Party aims to approve within two months steps to ease pressure on people in arrears with their mortgages, without giving into demands to let them surrender their homes to cancel their debts.
The changes to the law will make it easier to renegotiate loans, the PP’s economy spokesman, Vincente Martinez-Pujalte, said at a news conference today in the southern city of Murcia, according to an e-mailed statement from the party.
Political pressure is mounting on the government to protect borrowers. Record unemployment has triggered 400,000 foreclosure procedures since the start of the country’s financial crisis, and the European Court of Justice has ruled that Spanish mortgage law can lead to unfair evictions.
“The proposed changes are purely cosmetic, and deep down nothing is going to change,” Juan Jose Fernandez Figares, chief analyst at Link Securities in Madrid, said by e-mail. He said most of the steps are already being applied by banks that are reluctant to take more real estate onto their books. Spain has received about 40 billion euros ($50 billion) in European funds to bail out its banks.
The PP amendments, as announced by the government in January, will allow those in arrears to cancel their debt if they pay 65 percent of the mortgage outstanding on their home within five years or 80 percent within 10 years, if the property is sold at auction.
“That scenario is unlikely,” Carlos Masip and Juan David Garcia, analysts at Fitch Ratings, said during a conference call yesterday. “Many borrowers won’t be able to do that. If they could they wouldn’t be in foreclosure now.”
Other changes include capping interest charges for late payments to three times the official reference rate and prohibiting the start of foreclosure proceedings before three mortgage payments have been missed.
The proposals will also enable judges to suspend foreclosure procedures if they detect unlawful clauses in contracts and give notaries more power to prevent transactions in such cases.
Spanish home loans are usually full-recourse, which means homeowners remain on the hook for their debts even after a foreclosed property is sold or confiscated by the lender for less than the value of the mortgage. The Bank of Spain says the incentives created by those rules have held down the mortgage default rate.
“If the government were to take excessive measures regarding mortgage law, that would affect banks,” Juan Villen, head of mortgages for Idealista.com, Spain’s largest property website, said in a telephone interview. “It would endanger all of the hard work that has been done so far to restore the Spanish banking system to health.”