Spain's new mortgage law, which started its rounds through Congress yesterday, is expected to go into effect this spring. The law would introduce a series of new measures that could reconcile under-water mortgages for both borrowers and lenders. Right now, defaulting borrowers are at a clear disadvantage.
Last November, the government approved a bill designed to help people that were left out on the streets after failing to pay their mortgages because they had lost their jobs. A temporary solution was sought while the new law was being developed.
As a result, the text of the law that Congress is now examining has the potential to nix one of the main problems that mortgage defaulters face: the debt they have accumulated as a result of many months of non-payment. The bill under review does not establish criteria for what people can or cannot provide as security against their defaulted mortgages, which has garnered a lot of criticism from experts, but it does provide an alternative for defaulters to recover their lost homes. The bill will also cut astronomical 20% interest rates to a more modest 12%.
In addition, the bill may forgive up to 35% of debt that people owe on their homes provided that they pay at least 65% of their mortgage before five years lapse from the day they were evicted. This reprieve will drop to 20% if 10 years pass. The bill penalizes 30-year loans, and auctions will become more competitive and get better guarantees. The bill also offers realistic solutions for people to dig themselves out from oppressive negative equity.
