S&P: Expect More Downgrades for Spanish RMBS

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Spain’s mortgage-backed sector cannot seem to catch a break.

In a recent report, Standard & Poor’s said that severe delinquencies among residential mortgage-backeds tracked by the agency hit a historic peak of 5.38%. And the sustained economic crisis is not through with mortgages yet — S&P expects loan quality to further deteriorate amid sky high unemployment. With more than a quarter of the workforce on the dole, the jobless rate is stoking delinquencies. This, in turn, could feed into more downgrades.

Other factors are also weighing on ratings: “It is likely that we will take more negative ratings actions in 2013, as a result of declining credit quality, the lack of structural mitigants, and the increased number of ineligible swap providers in many transactions,” S&P said. The agency added that while mortgages in the country are variable, lower interest rates will not cut borrowers' payments enough to prevent more delinquencies.

Within S&P’s universe of originators tied to RMBS, there are sharp differences in performance. The agency said a group of originators and servicers in particular has underperformed the average throughout 2012 and Q1 2013. Among the laggards are Catalunya Banc, under the Hipocat name; Caja Ahorros del Mediterraneo, now folded in Banco de Sabadell; and Caja de Ahorros y Mone de Piedad de Madrid, now serviced by Bankia.

Thanks to a massive supply overhang and poor economic conditions, the agency predicts an additional 20% drop in Spanish housing prices over the next four years. It also foresees a 1.5% contraction in GDP for 2013.

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