Why mortgages might be Spain’s next headache | Analysis & Opinion |

Why mortgages might be Spain’s next headache Analysis & Opinion : "Are mortgages the next headache for Spanish banks? Regulators think the country’s 630 billion euro home loan market can survive the slump relatively unscathed, just as in the last real estate crisis of 1992-1993. Spanish banks’ biggest problem is bad loans made to real estate developers. But it would be optimistic to assume that mortgages will emerge unscathed.
In a recent presentation, theBank of Spain pointed out that conditions in 1993 were tougher than they are now.
Unemployment hit 24 percent and interest rates soared to 13.9 percent, compared to 2.6 percent today. Even then, only 4 percent of mortgages went sour. And banks were able to sell repossessed properties after the bust without incurring losses.
There are grounds for optimism. Despite falling property prices, Spanish home loans are on average worth just 62 percent of the value of the property. These loans are recourse, making it harder for borrowers to walk away. Spanish families will often help overextended homeowners keep up their mortgage payments. This is reflected in banks’ data: the proportion of mortgages classed as non-performing has fallen to just 2.6 percent."

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