The following is commented:
“In the US, subprime mortgages are considered to be those where the ratio of effort to payment (the percentage of the income of a family destined to pay the mortgage) is greater than 35% or when more than 80% of the cost of the financing is financed. living place.
In Spain it is maintained that a mortgage is high risk when the effort ratio is greater than 55% or when more than 85% of the cost of housing is financed.
Very important part of the mortgages
To say that a very important part of the mortgages signed in recent years have been more than 85% appraisal, touching 100% in many cases. Following the above criteria, many subprime have been signed in Spain. I do not agree to take the appraisal percentage as a criterion for rating the risk of a mortgage, since banks use appraisal insurance or demand to provide guarantors to go to more than 80-85% of appraisal, with which they are protected of the risk of granting these mortgages.
Normally banks require an effort rate of less than 40-45% of income.
What happens is that they take the current mortgage fee, not the one planned after a year or two. This has caused that the mortgages of between 1 and 3 years ago, that when contracting them were at 40% of debt ratio, now they are, in many cases, 50% or more. That is, while hiring them were not subprime mortgages, in fact now they are. And of these mortgages the market is full, whatever the Spanish banks say.
House does not cover the amount of their mortgage
“We will reach delinquent situations and embargoes similar to those in the US,” Mena forecasts. This would lead to another problem for entities as experts say that housing prices are falling, despite what official government data say. “The people who bought their home three years ago are seeing how the value of their house does not cover the amount of their mortgage,” says Mena.
“It may happen that people go to the bank office to hand over their house keys because they find it impossible to pay the mortgage payment,” warns Romera. And here comes the problem for the borrower, who would find a good in his possession that does not cover the client’s debt .
Contrary to what happens in the United States
Where the mortgaged only respond to the financial entity with their home, in Spain banks can go to the personal guarantee, seizing other assets or even the salary of the defaulters. “It is difficult for a bank to use a client’s personal guarantee to ensure payment because it has very little value,” Romera points out. “This serious problem is already happening. Many people, who now see that they cannot continue paying their mortgage payments, try to sell their home. But he realizes that he cannot sell it at the price necessary to cover his current mortgage.
So he faces the harsh reality of deciding if he sells below his mortgage debt and pays the bank the difference (which he evidently cannot by having no savings) or is embarrassed to have the mortgage executed judicially, thereby In the end you will lose your home and respond with your payroll and other assets to pay for what is missing. This serious problem, in my opinion, produces a strong brake on the lowering of second-hand housing prices, since, simply and simply, the owner cannot sell lower than his current mortgage.
In Spain there are high-risk mortgages, many more than financial institutions dare to admit. Hopefully, the Euribor will lower substantially and ease the tensions of over-indebted families, because the danger of default is very high.
And much of the fault lies with the credit institutions themselves, which did not impose reasonable risk criteria at the time of the boom.