They’re apparently powerful enough to get their way.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
“We probably have the best mortgage system in the world,” explained Francisco González, Executive Chairman of Spain’s second largest bank, BBVA, seemingly with a straight face last week at the annual World Economic Forum in Davos.
Given the devastating effects Spain’s “mortgage system” has had on the country’s economy and society over the last decade and a half, González’s sweeping statement is hard to fathom. It played a central role in stoking one of the most mind-boggling real estate bubbles of modern times, which was followed, in time-honored fashion, by a devastating crash that would have probably destroyed Spain’s financial system if it hadn’t been for the government’s taxpayer-funded bailout. To date, over 600,000 mortgage holders have been evicted from their homes in its aftermath.
In 2013, the European Court of Justice ruled that Spain’s mortgage law was wholly incompatible with a European directive on abusive practices in consumer contracts — that dates back to 1993! As El País reported at the time, one of the “anomalies” of the law in Spain was that if a homeowner failed to meet just one monthly mortgage payment, the bank could (and often did) initiate accelerated proceedings to evict the borrower and take possession of the property:
Even if the borrower alleges the contract he has signed is abusive and a court agrees with him, if the eviction has already been carried out the homeowner has the right to compensation but not the right to recover the property. The bank can also ask for full repayment of the loan even after obtaining possession of the property in question.
Perhaps this is what González had in mind when he spoke so glowingly of Spain’s mortgage system. It truly is a great system — from the banks’ perspective!
Little has changed since the ECJ’s 2013 ruling. In the face of such inaction, the European Commission last year demanded a complete overhaul of the country’s foreclosure laws, which would make it more difficult for the banks to speedily foreclose on delinquent owners, in turn hampering their ability to securitize and offload real estate assets on to international funds, such as Goldman Sachs and BlackRock. Again, progress has been painfully slow, except for in the North-Eastern region of Catalonia.
Now, the “world’s best mortgage system” is facing its biggest scandal, which could lay waste to one or more of the country’s shakier banks. Just before Christmas the European Court of Justice (ECJ) ruled that Spain’s major banks would have to refund all the billions of euros they had surreptitiously overcharged borrowers as a result of the so-called “mortgage floor-clauses” that were unleashed across the whole home mortgage sector in 2009 [A Nightmare Before Christmas for Spanish Banks].
These floor clauses set a minimum interest rate, typically of between 3% and 4.5% but in some cases as high as 5.5%, for variable-rate mortgages, even if the Euribor dropped below zero, as happened last year. While this is not strictly illegal, most banks failed to properly inform their customers that the mortgage contract included such a clause.
Now, 40 out of 42 banks have to pay back all the money they’ve overcharged almost one and a half million mortgage customers. The problem is that doing so could hammer the final nail in the coffin of one or more of the more cash-strapped entities. As Spain’s Supreme Court feared in its 2013 ruling against three banks (including, ironically, BBVA), forcing Spain’s financial institutions to reimburse all the funds they had surreptitiously overcharged customers since 2009, when the scam began, could seriously destabilize Spain’s financial sector.
To avoid such an outcome, Spain’s government has bent over backwards to soften the blow for the banks. It has drawn up a whole package of extra-judicial measures that allow — but fall far short of obligating — banks to compensate the customers they have systematically fleeced without having to settle in court, thus avoiding potentially billions in legal fees.
The new measures, passed into law today by royal decree, have done little to inspire confidence among consumers. “They are pure smoke and mirrors, since they do not force the banks to do anything,” lambasted the consumer association Facua-Consumidores en Acción.
With one exception: the banks must now calculate the total amount the floor clauses have cost each customer, although they are not obliged to reimburse the funds, as the ECJ ruling demands. The banks are nonetheless up in arms, since they know that if they inform each customer how much money they’ve overcharged them but refuse to pay them the full amount, those same customers will have the perfect ammunition to recoup the funds they’re owed in court.
Given that the vast majority of the floor-clause lawsuits so far launched against the banks have been decided in favor of the homeowners, this could represent a big problem for the banks, which are determined to do whatever they can to avoid — or at least significantly forestall — the big payback.
And Francisco González’s BBVA is leading the way. Together with the two other banks named in the 2013 Supreme Court case, Caja Mar and Abanca, BBVA is refusing to reimburse clients en masse until Spain’s Supreme Court clarifies the implications of the ECJ’s ruling. It is a preposterous pretext given that the ECJ is the highest court of the land (and is accepted as such by Spanish authorities), and its ruling is unappealable.
Spain’s most Italian bank, Banco Popular, is also playing for time as it frantically tries to clean up its heavily compromised balance sheets. Its defense is that Spain’s Supreme Court has not yet ruled that it, too, must reimburse its flexible-mortgage customers. The fact that the highest court in the European Union has demanded that it pay back all its customers in full does not seem to matter. Nor does the fact that banks like Popular and BBVA have already provisioned for at least part of the pay out they’re now refusing to honor in their 2016 accounts.
One thing is clear, though: even when the game isn’t completely rigged; even on that rare occasion when the law of the land actually favors the common man, the banks refuse to abide. And they are powerful enough to both openly defy the law and still get their way. By Don Quijones, Raging Bull-Shit.
These banks pressured borrowers with “poisoned offers” to settle, backed by the government. Read… From One Scam to Another: How Banks in Spain Intend to “Compensate” 1.4 Million Fleeced Homeowners
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Again Spain takes no notice of EU law when will it sink in to Germany that it’s being taken for a ride by the PIGS stares of the E U.
They all want the money via grants. But take no notice of the laws
Well with the U.K. Going it will fall on the northern states to pay for everything
And I think then and only then will Germany act.
There’s no point in having a European court if country’s are taking no notice of it
The funny thing is the UK does. And there leaving.
Makes no sence does it
NHZ, I feel like you should know that Spaniards cannot dump their property loans in CHPTR 11. As I understand it, even if you lose you house in foreclosure, you still cannot exit the original loan agreement…So, these Spaniards can lose everything and still have to pay the loan, so the “taxpayer” is somewhat on the hook for near term liquidity but the borrower is still on the hook…I feel like you’ve been comparing apples to oranges (Spain with Holland, Germany) without being clear on the ins and outs…
Now if I’m wrong about this, Don Q will set it straight
I´m spanish and a former property lawyer. You´re right, but there´s more to it. When a mortgage is executed by legal action, the owner loses property right away, it´s sold by the court in an auction, always by a fraction of the price. From day one, the bank charges the interest on the loan plus extension fees plus the legal interest on any remaining credit balance, add to that litigation costs, also attributable to the debtor (his and those of the bank, you lose, you pay both lawyers, both judicial attorneys and every expense like appraisals, property records, etc.)
In 2008 a friend of mine passed me on a case. It was a couple who was evicted after failing to pay the mortgage and were still being executed by the bank. The legal action started in 1983, and still going on! In fact, they owed, 25 years later more money than at the beginning, and growing every year. I didn´t picked it up, there was nothing to do, both of them were insolvent, they were merely surviving with over 30% of their pays witheld forever and getting on with the minimum pay left (less than 600 € each)
Spain is a shithole, you´re not treated this way if you kill someone after torturing the fellow. The bulk of the laws applicable to these cases are from the 19th century, early 20th as much, they are neo-feudal, stinking stuff from the times of “16 tons” or worse. I used to say to my clients that you get less punisment from raping a woman than from comitting fraud with credit cards. You get an afterlife from commiting a crime, even a truly disgusting offence in this country, if you fail to pay a mortgage, your life is gone forever.
And the best part is…even if you die and keep some goods or money (don´t know how, but possible, I guess) The bank gets everything before your heirs, and if they weren´t clever enough to accept the inheritance in a very specific way, not the default way at the notary public. They get the remaining debt as well. Rinse,repeat.
As I stated before, a stinking shithole. No wonder the courts in this country work so bad. They just keep piling on causes they never close and never will.
The EU system of banking and government is creating incentives for people to do this:
1) Take out the largest loan you can, with lowest amount down. Refuse to pay it back. Let taxpayers pay for the losses.
2) Do not pay taxes, as your tax money will go towards bailouts, general corruption, and wasteful spending.
3) Don’t put your savings in a bank. Your will earn zero interest, and you may not get the money back.
4) Do not invest in the future or start a new business. Asset prices are propped artificially high. Buying any asset now sets you up as bagholder.
It is no better in the U.S.
yes; obviously most people cannot do 1, 2 and 3 at the same time. So these bad incentives work extremely well for some of the people (parasites at the bottom and at the top) and not so good for others (the productive middle class). E-CON-omy.
Spanish bank’s can evict and forclose retail homeowners after 1 month.
SO WHY DO ALL THE SPANISH BANK’S HAVE THESE HUGE NPL LEDGER’S.
The Mafiosi at the ECB is complicit and aiding the Spanish banking fraud of the mortgage holders as the ECB should be instructing the bank’s show the liability and make full provision for it now or be wound up.
But of course they are club med bank’s, so the mafiosi at the ECB will do nothing. He only wants to wind up DB as it’s German and actually has a few assets..
one of the main reasons that Euribor went very low in the first place (even before the financial crisis) was keeping all those Spanish subprime homeowners above water. Mario has stated that very clearly in the past and he has been supporting them ever since (of course indirectly also supporting the banksters at it keeps the mortgages above water) at the cost of savers and taxpayers.
Crime pays, both for the big crooks at the top and the many little crooks at the bottom who know they can get away with this, living in homes way above their means for very little or no money while complaining that they are ‘victims’ like in the article above.
nhz, your arguments are flawed, for the following reasons:
1. The primary legal problem with the floor clauses is disclosure, according to the courts. People didn’t know about them. This is NOT a moral decision of whatever, but CONTRACT law.
2. The floor clause scandal is important not just because of how much is at stake for Spain’s struggling banks (between 5 and 10 billion euros) but because it is the result of widespread “abusive” practice by almost all Spanish banks. Even Spain’s deeply politicised judicial system has acknowledged that the way the mortgages were packaged and sold was non-transparent and as such contravened the basic principles of contract law, which happens to be one of the cornerstones of any semi-functioning capitalist system.
3. Most Spanish subprime owners have already lost or abandoned their homes. As I mention in the article, over 600,000 families have been evicted. The total number of mortgage holders affected in the law suit is 1.4 million, so almost half that number have lost their homes. Each day many more continue to be turfed out, many with children.
4. Don’t conflate the situation in Holland with the situation in Spain. In Spain the banks have been ruthless in executing forced evictions.
5. The basic idea that Mario Draghi’s NIRP and ZIRP policies are aimed at keeping Spanish subprime home owners above water is risible: it’s precisely the floor clauses that BLOCKED existing borrowers from benefiting from the low rates. And many subprime owners have lost their homes.
I see time and time again that homeowners don’t give a damn about non-transparent contracts (not spelling out all the risks and costs in full detail) as long as it suits them. They just want that home that they really cannot afford. It’s exactly the same here in Holland: when things go well the homeowner is brilliant, when things go bad they have been conned and have to be compensated. It’s never the homeowners fault.
For example, in Netherlands there now is some discussion on the sidelines about the NHG ‘free put option’ for homeowners that is fully guaranteed by the taxpayers. There are some clear details in the contracts about when this guarantee applies and everyone takes it for granted. But politicians know that when the bubble bursts, they will have to apply the rules otherwise the country could go broke. So they are no starting to clamp down on the most obvious cheaters and what do they do? Of course, they cry fool because others are doing it and have been doing it for years …
BTW I’m not advocating for evictions based on one small payment slip, but if people cannot pay the mortgage now with the lowest rates in history what is your solution? Keep them in their homes and let the savers and taxpayers bleed for it forever?
Thank you for drawing the bright lines framing this issue. Very helpful in understanding.
They have them because they´ve kept on refinancing the rest of mafiosi, and I mean listed corporations, local and regional gov, zombified enterprises choke full of unionists and political maggots…you get the idea.
Of course the ECB is 1000% complicit. There are six different mortgage rates in spain (did you know that?) fuck euribor. In Denmark the banks started to shrink mortgage payments when it went bellow cero. Here, it´s kept positive by any of those “spanish mortgage rates” based on euribor but always positive. This is outright criminal! The ECB could cut this insulting chicanery tomorrow by cutting ltro access or even cutting access completely. They won´t, because they are as criminal as the spanish banks.
” The ECB could cut this insulting chicanery tomorrow by cutting ltro access or even cutting access completely. They won´t, because they are as criminal as the spanish banks.
I am not convinced the ECB is a totally criminal entereprise.
however the Charlie Hunt Mafiosi, and his gang in charge of it at the moment, definitely are.
Are you suggesting that mortgage rates should go negative for every Spanish borrower (like they did for a tiny percentage of Danish and Dutch borrowers)?
Now that would solve a lot of problems for sure! I bet you could get elected for president on just that promise (frankly, I’m surprised that French presidential candidate Manon hasn’t yet included NIRP mortgages in his platform …).
The only thing that is really criminal IMHO is negative Euribor. Paying people to borrow money is beyond stupid.
A couple of basic rules regarding banks:
1. Heads, the bank wins, tails, you loose.
2. Regardless of how pleasing the person on the other side of the counter is, his/hers role is to ensure that the bank does make profit, if the customer makes some profit at the same time, well, s**t happens …
Keep these in mind when dealing with a bank and you’ll manage.
The article suggests that all these ‘victims’ thought they were more clever than the bank when signing these variable rate mortgage contracts. Looks to me like they were either delusional or dishonest.
“We probably have the best mortgage system in the world,”
Nah, that must be that tiny country in the north-west corner of Europe where even people on social security can buy a home, 103% mortgages are the norm, mortgage and other housing costs (for owners) are fully deductible from income taxes and all downside risk in owning the home can be passed to taxpayers. Even better: the Dutch bubble is much bigger than the Spanish one and it hasn’t popped yet. The Dutch know what they are doing, they produced the first big financial mania in history (tulip mania, 1630’s) and they probably will have the last one too (so big that is crashes the whole economy).
Also, I really don’t get why we should be angry about a floor clause. Did all these clever homeowner fully expect that Euribor would go negative soon after signing their contract, effectively expecting that they would get their home for free and then some??? Of course not, all these very clever buyers used a variable rate mortgage because it was a bit cheaper than a fixed rates one, shoehorning themselves into homes they really should not have purchased. Crocodile tears if you ask me. And who will pay if these ‘victims’ get their way? Of course, European savers and taxpayers – because the Spanish banking system is bankrupt, so they sure are not going to pay up.
And why does the EU remain totally silent on the total rip-off that has been going on for EU savers over the last year, to the tune of many more billions then the amount we are talking about here? Of course, because ripping off savers suits the powers that be.
BTW, it’s funny that EU is so negative about this abuse by Spanish banks, while remaining silent about the fact that e.g. in Netherlands people who are behind 2-3 months in rent get evicted even if the payment is just due to technical problems (at the same time, Dutch homeowners who are 1 year behind on the mortgage are not even registered as delinquent, and unlike with renters evictions are extremely rare). Probably this is because renter evictions serve a good European cause, making place for ‘refugees’ who get their home for free from the Dutch government ;-(
Well said. I see a lot of taxation without representation these days. When unelected government officials have the power to attack your savings and dictate rules of home ownership via their control over interest rates, there is a serious violation of freedom inconsistent with our history in both Europe and the United States. Important aspects of our democracy have been take. If legislators were to pass a law that suppresses interest rates and increased home prices 200%, they would be voted out immediately. When government can achieve the same result through insidious actions of unelected officials, the same result can happen without much outcry, for a while anyway.