The second modification on the regulations of the mortgage market by the Ministry of Economy so as to protect debtors changes the rules of the game for raters in the foreclosure procedures.
First, in those procedures where a bid takes place, banks will be obliged to accept the valuation presented by the debtor. (…)
So, the property will be auctioned based on the value established by the appraisal provided by the debtor, not the bank. This will prevent the institutions from presenting the famous “second assessment”, which reduces significantly the value of the property so as to take it over at a lower price or to obtain more in the auction. This is always a disadvantage for the borrower, who cancels a smaller percentage of the debt.
On the other side, “it is also prohibited for financial institutions to acquire, directly or indirectly a significant participation in the rating companies.”
This means that banks will not be able to acquire more than 10% of a rating company. Up to now the maximum participation was of 25%. The intention is to “reinforce the independence of the rating companies opposite to the institutions.” It is worth mentioning that the financial sector has at one point controlled more than half of the rating companies.
And those rating companies which obtain at least 10% of their total income from banks or are owned by a financial institution should have “the necessary mechanics to favor their independence and thus avoid any conflicts of interest. These mechanics should include at least “an internal regulation of performance which establishes those incompatibilities between executives and administrators”. The Banks of Spain will revise these transparency measures and will be able to establish minimum requirements.
This modification also enables the Board of Consumers and Users to demand the Bank of Spain to initiate disciplinary proceedings against a rating company. Up to now only administrative institutions could demand this. Finally infractions from rating companies are increased, being some of them “very serious”.