Half a Million Families Will Lose Homes Due to Debt Crisis
January 16th, 2012
The numbers are chilling. According to a study by the Association of People Affected by Foreclosure and Auctions (AFES) on the impact of mortgage defaults in Spain, from 2008 to 2015 “a total of 510,000 families will have lost their home as a product of the consequences of the economic crisis”. A harsh reality that will also take a toll on banks’ balance sheets, which will have to bear losses of some 34,000 million euros resulting from the defaulted mortgages to individuals.
The Association breaks down this figure in stages : from 2008 to 2011, “150,000 have already lost their homes and are saddled with debts that prevent them from having any chance of controlling their future”; and in 2012, “135,000 families are undergoing foreclosure procedures”. “Unless urgent action is taken” to these figures we must add, another “133,000 who already can no longer keep paying their mortgage” and “100,000 who will cease paying it in the next two years as a result of rising unemployment”.
AFES stated that the effects of these defaults are leaving financial institutions in a “critical situation”. The Association pointed out that the banks would have already granted loans for house purchases amounting to 18,750 million euros, but that “most of these auctions have been abandoned”. In this regard, they noted that the cost of judicial and administrative proceedings is “a significant outlay which can be up to 20% of the value of the house.” Thus, AFES foresees that “the price of real estate held by the banks will now be necessarily readjusted to the real market value.”
This “critical situation” of the financial institutions will be reflected in their balance sheets, yielding a total loss of 34,000 million euros from mortgages to individuals by 2015. Broken down in phases, from 2008 to 2011 losses amounted to 8,000 million, and in 2012 the foreclosure proceedings will result in “red figures” of 18,000 million, reaching 34,000 million in 2015.
The group which prepared this study also reported that despite the difficulties, “banks are trying to adapt to debtors’ situations so as not to get to the default stage, but that nothing can be done to negotiate the refinancing with families who have ceased to have any income”.
Chairman of AFES, Carlos Baños, said that “undoubtedly the change of government will bring new measures in relation to mortgage arrears.” Baños hopes, first, that the government will state its position in respect to the costs of financial institutions on provisions, and secondly, to launch initiatives to combat the black economy, in order to “open the debate on mortgage enforcement procedures as a resolution to default situations, and instead look for alternative solutions which could be negotiated between banks and their customers.”
El Mundo reported that the AFES President called for the financial institutions to take the lead and promote a “change of mentality encouraged by policy measures that build trust in the system and allow them flexibility in their objectives, understanding the need to seek alternatives to the current management of mortgage arrears.”
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