Fitch: Spain Mortgage Law Threat to Recoveries

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A new Spanish mortgage law that gives a certain category of borrower a reprieve from foreclosure raises the risks of further measures that might hurt recoveries on defaulted loans, according to a commentary by Fitch Ratings.

In effect from Nov. 15 2012 to Nov. 15 2014, Royal Decree 27/2012 basically prohibits lenders from evicting people considered especially financially vulnerable.

“Fitch expects only a relatively small proportion of borrowers will qualify as the criteria are tight,” the agency said. “In particular, it seems likely that only those households in which all members have become unemployed and no longer receive unemployment benefits will be eligible for the suspension of eviction.”

This move by Spain’s government is meant to relieve social pressure from the mounting economic crisis. There have been 200,000 evictions in the country over the past five years, according to Fitch.  

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