Today, borrowers like Numke are the most likely to fall behind on mortgage payments and lose their property, according to a Moody’s Investors Service study of 890,000 mortgages from 2006 through 2008. The average default rate for foreign residents is “strikingly high compared with mortgage loans to Spanish residents,” Moody’s wrote in the report last month.
Faced with mounting losses, Spanish banks have reduced new lending, which the National Statistics Institute in Madrid said fell 35.8 percent from a year earlier in November, the 19th straight decline. The bad loans to immigrants are also complicating a push for Spanish banks to recognize greater losses on real estate they accumulated during the crash and driving buyers from the 182 billion euro ($240 billion) Spanish residential mortgage-backed securities market.
“Deals with a significant portion of foreign residents, whether immigrants or vacationers, are double no deals for me,” said Alexander Fagenzer of Union Investment GmbH in Frankfurt, which oversees 120 billion euros. “Incentives for those borrowers to keep paying are significantly lower than for Spanish residents,” and that’s “key in a country facing high levels of unemployment and declining housing prices.”
Source: Business Week