With attendant pomp and circumstance, yesterday in Congress, Minister of the Economy Luis de Guindos announced his plan to combat evictions. In a follow-up announcement, it was noticed that this plan would turn into a code of best practices developed jointly with the Ministry of Justice and that it would be voluntary.
That is to say, lenders would have the option to forgive mortgage payments for those who are unemployed. This seems like a logical step given the state of the banks' balance sheets and that they would be facing the fact that little credit exists even for those who are solvent.
Further, since 2008 the banks have been carrying out a much wider range of measures to prevent families low in resources from ending up homeless: the option to rent with a buyback opportunity, lengthening payment terms or waving interest payments temporarily. Financial stimuli that allow the banks to pursue these measures are not going to cover actual costs. And Minister De Guindos should have explained what constitutes insufficient payments or fair quotas for those who are in arrears but making some payments.
Additionally, the real drama for families is eviction, and that is something that creative strategies to defer or temporarily forgive mortgage payments would never be able to avoid. It is true that mortgage forgiveness would erase debt, which is something that would bear fatal consequences for lenders and the general economy, but the most logical step would be for family to keep paying minimum payments as best they can. The minister only made a slight nod to this option and did not speak enough about how to address interest rates that have accumulated for non-payments, in many cases originating from a credit snowballs.
