* Government to change law to protect most needy
* Any law change will not let homeowners off hook
* Many left homeless and with huge debts
By Sonya Dowsett
MADRID, Nov 15 Sixto Segura and Susana Reyes sit
in their modest flat in a Madrid suburb waiting for the police
to evict them from their home.
Reyes, 57, can barely move and has difficulty talking
because of a stroke. "I don't know what I'll do when the police
come," she says. "I can't move."
The couple have nowhere to go. Their two adult daughters
each live in a rented room with their husbands and children and
cannot accommodate their parents.
Segura and Reyes bought their flat for 200,000 euros
($254,200) in 2006 with a loan from Santander that
practically covered the price, Segura says. But then he lost his
job in construction and Reyes's restaurant work dried up.
Rising interest rates pushed their monthly mortgage payments
to 1,200 euros from 900 euros. They stopped making them in 2009,
and now face life on the streets.
Cases like this have become increasingly common in
recession-bound Spain, where a 25 percent unemployment rate
coupled with drastic government spending cuts has pushed
society's most vulnerable further into crisis.
Spanish banks that gave out cheap home loans at the height
of a property boom which collapsed in 2008 are facing public
anger as more homeowners are evicted for failing to keep up with
mortgage payments in a country with a glut of 1 million empty
After protesters took up their case, Segura and Reyes won a
court order delaying their eviction, but that extension expires
Banks, many of which are about to receive the first funds
from a 100 billion euro credit line from a European bail-out,
have repossessed close to 400,000 properties since 2008 although
not all of these are residential.
The suicide last Friday of a 53-year-old woman facing
eviction, the second in as many months, grabbed headlines and
pushed the issue to the top of the political agenda.
The government has created a working group with the
opposition Socialists which has met over three days to discuss
ways of helping the most needy. It hopes to pass measures into
law by decree on Thursday.
These measures will most likely take the form of a two-year
moratorium on mortgage payments for homeowners in extreme
financial need, political and legal sources said.
The government is wary of creating the image that Spain is
relaxing rules on the payment of mortgage debt. Any change in
the law will not let homeowners off the hook and will not be
retroactive in nature, a source close to the government said.
"We cannot project the image that in Spain you don't pay
your mortgage and you end up keeping your flat," the source
Banks are working with the government to prevent the
eviction of vulnerable people. The Spanish Banking Association
(AEB) said its members had agreed with the government to suspend
eviction cases for two years for those most in need.
The leaders of Spain's top four listed banks - Santander,
BBVA, Popular and Sabadell - met at the association's
headquarters on Tuesday to discuss the matter, banking sources
"Banks haven't been very popular, so they are willing to
make some effort here, but there's unlikely to be a dramatic
change in the law. It will be for the most desperate cases,"
said Carles Vergara, economics professor at IESE business
Mortgage law in Spain is amongst the toughest in Europe.
Homeowners remain liable for what they owe on their loan, even
after returning the house to the bank, if the value of the house
does not cancel out the entire mortgage debt.
In a country where home ownership is over 80 percent,
residential mortgages classified as doubtful at end-June stood
at 3 percent of the total, a fraction of the 27 percent classed
as doubtful on loans to real estate developers, Bank of Spain
By contrast, 11 percent of residential mortgages in Ireland
- also suffering the aftermath of a housing crash - were in
default at end-June.
A point of concern for investors is that any change in the
mortgage law could affect mortgage-backed bonds, a major source
of financing for Spanish banks.
Spanish banks have 426 billion euros of these securities in
circulation, according to the Spanish Mortgage Association, with
a large part parked in the European Central Bank as collateral
If rules were relaxed on paying back mortgages, defaults
could shoot up, weakening the loans backing these securities.
But bond analysts said there was little chance of this.
"ON THE STREET WITH A HUGE DEBT"
A moratorium on the mortgage payments for the most needy
would not affect covered bonds, analysts said, as these loans
would probably already have been written off by banks.
"What would concern investors is if a change in law reduces
collateral to issue mortgage-backed bonds in the market or
access the European Central Bank," said Bernd Volk, covered bond
analyst at Deutsche Bank. "But I can't see this happening
because of a freeze in foreclosures."
Lawyers and government sources agree a change in the law to
allow homeowners to hand over their keys and walk away from
their house with no debt when they can no longer pay the
mortgage is highly unlikely.
But with house prices down around 30 percent and predicted
to fall further, many of those evicted from their homes are left
owing the bank tens of thousands of euros.
"In Spain, the bubble was so big, that the debt people are
left with is sheer madness," says Mauricio Valiente, a lawyer
who helps evicted people.
Rosa Quituizaca, sitting in protest outside a central Madrid
branch of Bankia wrapped in a blanket, is expecting to be
evicted from her home in a matter of days.
Bankia, who gave a loan for practically the entire
300,000 euro cost of the house in 2006, repossessed the property
in February, and she will be turned out on to the street with an
outstanding debt of 110,000 euros, she says.
"We're without a house, on the street and with a huge debt,"
says the former cleaner, who made a living looking after old
people in their homes until an accident made her unable to work.