Sister Inmaculada Torano, a 47-year- old Spanish nun, stepped in to negotiate when Bankia (IBEX) SA tried to repossess the home of a student at the school where she works over missed mortgage payments.
“The bank may have a right under the law to evict, but there’s a difference between what’s legal and moral,” said Torano, who teaches at a school run by the Sisters of Charity of the Sacred Heart of Jesus in the working class Madrid suburb of Villaverde. The intervention helped persuade Bankia, led by former International Monetary Fund head Rodrigo Rato, to delay eviction until the student finishes the school year in June, she said.
With Spain’s economy set to contract in 2012 for the third year out of five and unemployment at 23 percent, banks are increasingly easing terms for customers who are missing payments on mortgages underwritten during the country’s decade-long housing boom. Pressure to renegotiate debt and delays in repossessions are raising doubts that default rates on Spain’s 613 billion euros ($817 billion) of mortgages have stabilized.
“It probably is going to be worse than people expect, even though the banks say it’s not a problem,” said Daragh Quinn, an analyst at Nomura International Plc in Madrid, on the outlook for mortgage arrears. “The more they kick the can down the road, the less visibility we have on what is really happening with asset quality.”
Least creditworthy
Investors view the ^182 billion of bonds tied to Spanish residential-mortgage backed securities as being among the least creditworthy in Europe, trailing securities from the UK, Netherlands and Italy. The outlook for the collateral is expected to worsen as mortgage arrears rise with increasing unemployment and house prices continue to fall, Moody’s Investors Service said in a report last month.
The extra yield investors demand to hold Spanish RMBS above benchmarks has risen 170 basis points to 530 basis points in the past year, according to JPMorgan Chase & Co. data. That’s even after spreads contracted 1.1 percentage points in 2012 amid growing confidence that Europe’s leaders will contain the Greek sovereign debt crisis. A basis point is 0.01 percentage point.
Bankia, based in Valencia, has dropped 16 percent this year, the fourth-worst performer in Spain’s IBEX 35 Index, which is down 0.2 percent.
Spain’s government has taken steps to tackle the problem of souring real estate piled up on the balance sheets of banks by forcing them to recognize more losses. Lenders, which have about 175 billion euros of what the Bank of Spain terms “troubled” property assets, will have to take about 50 billion euros in provisioning costs or capital charges under plans announced by Economy Minister Luis de Guindos on February 2.
Impossible Improvement
The quality of mortgage loans, whose volume more than tripled over the past decade, may come under more stress as Spain enters a recession that the International Monetary Fund says could cause the economy to shrink 1.7 percent this year, said Juan Villen, head of the mortgage advisory service at Idealista.com, Spain’s biggest property website.
Data from the Spanish Mortgage Association show the default rate for home loans was 2.63 percent in September, less than the 3 percent reached in 2009. “Unemployment (SPUNEMPR) is going to continue to rise and this will mean that there will be more mortgage arrears,” said Villen in an interview in Madrid.
Other analysts are skeptical of data showing the improvement in mortgage arrears. “This is impossible, in our opinion, given the current economic environment and the evolution of unemployment,” said Santiago Lopez, an analyst at Exane BNP Paribas in a Feb. 15 report. “Similar to what we have already seen in the developer book, banks seem to be restructuring retail clients’ loans quite aggressively.”
