Spain's parliament to debate mortgage law reform

MADRID Tue Feb 12, 2013 2:27pm EST

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MADRID Feb 12 (Reuters) - Spain's parliament agreed on Tuesday to debate reforms to tough mortgage laws, the focus of bitter protests in the country's economic crisis, after activists presented an petition with close to 1.5 million signatures.

The ruling centre-right People's Party surprisingly voted in favour of admitting the petition for debate, after having said until the last moment that it would vote against it.

Public pressure on Prime Minister Mariano Rajoy to change mortgage rules has mounted as banks have repossessed 400,000 properties - most of them residential - since 2008 when a construction bubble burst and the unemployment rate spiraled up to 26 percent.

Housing prices have dropped and huge numbers of people owe more to their lender than their property is now worth.

Rajoy has already passed rules making it harder for banks to evict unemployed families after a number of suicides by homeowners facing foreclosure and eviction.

The petition that lawmakers will now debate calls for mortgage debt to be cancelled when an owner hands property back to the bank, even if the property is worth less than the loan. It also calls for evictions that have already happened to be reversed, and for the government to expand its public housing programme.

Spain's economy has been stagnant or contracting since the crisis began in 2008 and public anger at banks has grown since the troubled financial sector - hit by the collapse in the property market - received a 40 billion euros rescue that taxpayers will pay for.

Under Spanish law banks have legal recourse to pursue mortgage borrowers for outstanding debt even after the property is handed over to the bank. Because of strict rules, despite the crisis, Spain's mortgage default rate remains relatively low at 3.5 percent.

Banks fear that changes to the law could affect one of their main lines of financing, mortgage-backed bonds. (Reporting By Sonya Dowsett; Writing by Fiona Ortiz; editing by Ron Askew)

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