Reform of securitized Spanish mortgage market crucial to foreign investors

Spanish government is planning to reform its mortgage laws in order to reduce social tension about evictions. Their idea is to protect debtors without significantly altering the market.

The typical Spanish mortgage has been reduced from €150,647 in 2009 to €112,875 in 2012, although mortgage debt represents around 64pc of GDP, Spain being Europe’s the forth mortgage market. If we include mortgage backed securities and bonds, it is EU’s debt securitization second market after UK, a total of €683 billion.

Although macroeconomic conditions have been favorable, the quality of the mortgage portfolio of the Spanish banks has not suffered a significant deterioration. The rate of these loans payment default was of 3.49% in 3Q 2012, a relatively low level, which, however, has not diminished the foreclosures. On the contrary, started executions and evictions they have increased particularly in recent times, provoking a heated social debate on mortgage regulation in Spain. The proposal to accept the retroactive payment in kind to relieve pressure on the mortgage, which the Government opposes, would be more harmful than beneficial to the Spanish economy, in the view of Caja de Ahorros Foundation Santiago Carbó and Francisco Rodríguez.

Two aspects stand out in the debate regarding the Spanish mortgage market. First, mortgages are the main source of debt of Spanish families, and therefore, their main challenge in the next few years for the necessary deleveraging.

On the other hand, the Spanish mortgage market is very securitized. According to the Association for financial markets in Europe (AFME, its acronym in English), Spain and United Kingdom are two most important issuers of both MBS and bonds, whereas in Germany bonds are the most common, or Italy, where there are more mortgage-backed securities. Taking into account that these titles have been sold in Europe and other regions, it seems clear that any changes affecting the evolution of the market mortgage Spanish is of vital importance for international investors.

*Read the Caja de Ahorros Foundation (Funcas) report here.