Mortgage Debate: Should the home pay off the loan?

The Euribor continues to rise – it will end May around 2.15% – and, at the end of each month, all mortgages look at it with concern to see how much they will have to pay when they have to check their credit . But in parallel to that data, they are also increasingly focused on the news that a few months ago appear in the media about judgments or possible legislative changes that could change the conditions.

The Congress has created a subcommittee to deal with mortgage legislation, although no major changes are foreseen. First was, last January, the sentence of a Navarrese judge who for the first time in Spain stipulated that the delivery of the home paid off the mortgage loan , a judicial exception since the law stipulates that the debt remains even if the bank’s client loses his house for not paying it.

This measure, which was also later adopted by another court in Barcelona, is what is called dación en pago , a growing claim that even some political parties have tried to bring to Parliament so far with little success, although at least it starts talk about it: the Congress of Deputies has created a subcommittee to deal with the mortgage issue, although with few pretensions.

Shoemaker and financial risk

The same Zapatero president, whose Government has pending months to present the figures of the cost of the dation in payment, already said that this measure would risk the solvency of the bank. With these words, he wanted to calm the bank before the growing social demand that the delivery of the property pay off the debt. The employers of the sector, the Spanish Banking Association, even went to the economic vice president Elena Salgado in a letter (PDF) warning that a measure of this type would entail a credit restriction .

Patxi López and Esperanza Aguirre have also raised the issue in recent times, but while the movement in favor of this measure with support such as that of the commercial law judges continues. In the pre-campaign and the electoral campaign the question has also emerged: Basque Basque President Patxi López (PSOE) has spoken of the possibility of limiting the debtor’s liability, although he has also referred to the risks of these measures; For its part, the president of Madrid, Esperanza Aguirre (PP), has gone further by showing herself in favor of the payment of new mortgages. But the entities are still closed in band to deal with the issue, as La Caixa recently stated, whose president, Isidro Fainé, said banks and savings banks always reach agreements with customers who can not pay their mortgage.

This is what, according to Cinco Días, banks would be doing by allowing foreigners to cancel the debt with the delivery of the home. That is to say: allowing the dation in payment. No wonder: many office managers have already found on the other side of their table a person who gives him the keys to his home immediately before taking a plane to his country and prefer to accept that before maintaining a debt of almost impossible to charge and lengthen the procedure.

And it is that beyond the recent judgments that are affecting the land clauses, which fix a minimum interest in variable interest loans, is the survival of the debt the central axis of the mortgage debate: that if the owner can not pay , the property is seized and the outstanding debt survives.

To settle it, the home is auctioned with a lower exit price than the appraisal. If there is no buyer, the financial entity can claim it for half of its exit value and this is the only amount that is subtracted from the debt. The rest, the buyer has to continue paying, with their interests, for which, the entities can resort to the seizure of the rest of their goods and income. However, this legislation is the general rule throughout Europe, although each country has certain peculiarities.

Mortgage models

  • USA The dation in payment that does exist in the country is actually a recovery of the good, because the original foundation of your mortgage system – beyond its enormous diversity – is that the property is a guarantee on the loan and the client only becomes in owner when he has paid. If you do not pay, the housing and the matter is not settled. But they could even go further: in the current situation and the increasing defaults, it has been studied that he would give 15,000 euros to deliver the house that he can no longer afford, according to Expansión.
  • Conservative Europe Belgium, Germany, France, Greece and the Netherlands are the countries that continue to bet on fixed interest rates. Although they have different characteristics, they respond to a model that is committed to stability: strict conditions on income and level of financing for the granting of mortgages. The bet is also to shorten the maximum terms: mortgages in the environment of 20 years.
  • The Europe of risk . Spain is part of the group of those with the highest level of penetration of mortgages at a variable interest rate, together with Finland, Portugal, Luxembourg and Malta. In general, they also share a longer duration of mortgages, around 30 years. In fact, in Spain they have been granted up to 50 years. Also the conditions that the entities demand for their concession are less demanding: more risks in exchange for more activity. In fact, the Financial Times has just published that in Spain they have already returned the easy credits to give exit to the real estate that the banks have been left by the non-payments. The machinery seems to have started again.