Monday, Jun 21, 2010
Spanish Banks desperately unloading housing inventory
Business Insider: Why Are Spanish Banks NOW Rushing To Offer No-Money-Down Mortgages With Tiny Teaser Rates? Read more: http://www.businessinsider.com/spanish-banks-are-now-rushing-to-offer-no-money-down-mortgages-will-low-teaser-rates-2010-6#ixzz0rU9HIBPy
"Two years ago, Spanish banks prevented waves of mortgage defaults by swapping homeowners debt for assets -- homes. This averted huge write-downs on debt, but loaded up Spanish banks with houses as assets instead of loans.
Spain's housing market has only gotten worse, and now the bill is coming due as the banks labor under the weight of an estimated €59.7 billion ($73.8 billion) in real-estate assets on their books. Under pressure to make further markdowns on the assets by their main regulator, the Bank of Spain, many banks are now scrambling to unload the properties as quickly as possible."
Posted by mountain goat @ 12:20 PM (2190 views) Add Comment
14 Comments
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1. the number cruncher said...
I know some one who is a international banker - at a board meeting of a charity we sit on she advised the board to take all of the charity's money out of the Spanish owned banks and not to touch them, this was about 4 weeks ago. She told me there was some very nasty rumours going around about a possible collapse. Her advice was the smart money is starting to get out.
"catalan on" is this recaptcha thing playing games with us?
2. mark said...
i think houseprices in spain are still way too high, looking around on web and watching that TV programme.
3. a saver said...
I have a feeling that our UK banks own huge amounts of property, e.g leased properties as well as foreclosed ones, can anyone comment?
4. Brightonrentfodder said...
what worries me the most is increasing acquisitions of Santander. Surely they should be in a fair bit of trouble in Spain too?
In which case, after they have over-stretched themselves again, to buy RBS branches, who's responsibility will it be to save their sorry a*se afterwards?? How come this is not discussed in the media??
5. mrmickey said...
number cruncher, I was told the same thing a couple of weeks ago by somebody who works in the City, they said be very carefull if you have funds in any UK bank owned by Santander as they may not be covered by the UK government if they implode.
6. uncle tom said...
Spain's principle economic timebomb has yet to go off..
..with such an excess of property, house prices in all but a few exclusive areas must drop to construction cost or less.
Most Spanish property is constructed in a fairly simple and inexpensive manner (relative to the UK) so when the dust settles, it should be possible to buy a decent place for around 50,000 euros, and something pretty special for 100,000.
Currently the median price in the Costa del sol is over 250,000 euros and in the less glamourous area of Valencia it is about 200,000 (prices from Rightmove).
It follows that a 50% fall in Spanish prices (from their current levels) is at the optimistic end of the spectrum, and the collapse could well be much worse.
The Spanish banks have managed to delay the inevitable by taking and holding property that has been the subject of a default, and are now under pressure to offload this stock.
Their losses from these sales will be painful for them, but nothing compared to the wave of debt defaults that lie around the corner; when prices finally collapse, and borrowers refuse to service their mortgages..
7. ontheotherhand said...
I'm not sure I fully understand the problem here with the banks in Spain. So they are holding physical property on their books at inflated prices and the Central Bank is about to force them to hold them at realistic prices? Fine. So they sell the properties with subsidised mortgages to unwary punters, but surely that, errm, crystalises the value of the property? e.g. If a bank is holding a property at an unrealistic value of 100,000 and the Central Bank is about to force them to write it down to 80,000, I only see a benefit to the bank if they sell it to unwary punter for more that the 80,000. Since when would a Central Bank force one of its own to value a property at less than it can sell it for?
8. need-a-crash said...
I remember being warned on this site about a year ago about making deposits in Spanish banks including Santander, although I really can't envisage Santander going down. Santander is definitely too big to fail so I'm confident the Spanish, EU or even UK government will bail it out.
9. mark wadsworth said...
@ OTOH, you are missing a bit. Spanish bank holds repo'd property at "cost" (i.e. to avoid a write down, they cancel a EUR 100,000 mortgage asset and replace it with a EUR 100,000 property asset). In a free market, they'd only be sell it for EUR 80,000 and charge 5% interest on the loan, so what they do is sell it for EUR 100,000 and charge 4% interest on the loan. The buyer is, in the short term, not bothered either way, hey presto, the EUR 100,000 property asset has now been replaced on the balance sheet with a EUR 100,000 mortgage asset. Extend and pretend.
10. ontheotherhand said...
MW, I sort of understand the concept, but the numbers would have to be more stretched than yours? 5% on the market value of 80,000 would be 4,000 interest, the same as 4% on 100,000. Why would a punter overpay for something on sale from a bank when they could find an equivalent on the market for 20k less, and the annual cost of service would be the same. I guess it has to be more like 8% interest and big downpayment on the free market, or 100% mortgage and 3% on a bank place costing more?
11. mark wadsworth said...
OTOH : "I guess it has to be more like 8% interest and big downpayment on the free market, or 100% mortgage and 3% on a bank place costing more?"
Exactly, that is just as possible, but it's the same principle.
12. Propapedia. Com said...
As a property owner in Spain, there isnt much more to lose, having lost 60-70% of the value over the last few years surely the house prices must be value for money. If the banks are offering cheaper mortgages maybe it is to kickstart the business of buying and selling houses.
13. refusetobuy said...
Are Portuguese banks in a similar state?
14. stillthinking said...
Longer term, cheap Spanish housing will be a blessing for the country. Its not such a bad place, I wouldn't mind working there for a few years if there were sufficient English only jobs around (i.e. we move in and displace the indigenous..).