2 February 2016 – Expansión
The ratings agency Moody’s considers that the Law for urgent measures against evictions and energy poverty carries a serious risk of affecting real estate investment and the mortgage market in both the autonomous region, as well as across Spain. In its report, to which Expansión has had access, the entity says that the legislation, approved by the Catalan Parliament in July 2015, “has a negative impact” on the mortgage funds in the Spanish residential market.
According to the ratings agency, the Catalan law, processed through a Popular Legislative Initiative (ILP), promoted by the Platform for those Affected by Mortgages (PAH), contains an additional provision that may seriously harm transactions involving mortgage portfolios. Specifically, the law establishes that if, for example, a bank sells a mortgage to a third party, then the debtor may be freed from the loan originally contracted and will only have to repay the third party the amount that said third party has paid to acquire the debt.
Many investment funds have entered the Spanish market (in recent years) to buy mortgage portfolios from the banks at significant discounts. They typically buy risky mortgages, overdue mortgages, and those that are at risk of default, but the investors entering into these operations focus on the yield that they may be able to obtain for the difference between the loan value originally contracted and the price that they have effectively paid to acquire the debt. But that difference may now disappear. “The new law is likely to discourage potential buyers from acquiring delinquent mortgage loans”, say Moody’s in their report. The reason is that “the law potentially deprives the buyer from receiving any kind of profit from these types of transactions”.
The ratings agency says that if an operation is completed at a price below the contracted price, then this “situation may result in part of the mortgage effectively being subject to a discount”.
Moreover, the agency says that a similar measure already exists in the Spanish Civil Code, although there are “significant differences”. According to the state law, the debtor may only exercise this right if he/she pursues it through a judicial dispute and he/she may only exercise this right during the first nine days immediately following the operation. In the Catalan case, although it applies only to primary residences, no legal action is required and no term is established for settling the debt.
The Housing Minister for the Generalitat in Cataluña, Carles Sala, said to this newspaper that he understands the position of the ratings agency, but he highlights that the solution chosen by the Catalan Parliament is based on the fact “that a problem exists that must be addressed”.
When the law was approved, the Government announced that it expected to submit the bill to the Constitutional Court, although that has not happened yet and the law “is now being deployed”, say sources at the Generalitat. The law was passed unanimously, including by the PP.
Nevertheless, its backers consider that the regional Government, led by Carles Puigdemont, is not making enough effort to implement it. The group, which presented the ILP on the housing crisis, has recently demanded another meeting with the new regional president to force the application of the legislative initiative.
In a letter sent to Puigdemont, the backers of the bill, namely, the Platform for those Affected by Mortgages (PAH), the Alliance against Energy Poverty and the DESC Observatory, claim that the right to housing is still being violated and energy poverty is still growing.
After the “historical milestone”, namely, the unanimous approval of the housing ILP in July, the backers say that Puigdemont now seems “vague” and “confused” about the “importance of the legislation”; they demand that he progresses with its implementation.
Original story: Expansión (by Bernat García)
Translation: Carmel Drake