The Effects of the 2012 Spanish Law Reform to Protect Mortgage Debtors

Abstract

We examine the effects of the legal reform passed in 2012 in Spain to protect mortgage debtors. Under the new regime, it is difficult for low-income debtors who meet certain requirements to be evicted. In the case of default, the bank is forced to offer the debtor a restructuring of the debt, or the debtor can even, as a last resort, transfer the property to the bank as an alternative to having the lender foreclose on it, thus being allowed to stay in the property as a tenant and paying a reduced rent, and avoiding eviction even after foreclosure. We consider quarterly data from 50 Spanish provinces (NUTS III regions) from 2001 to 2019(Q3). We use panel data models with regional, year, and quarter fixed effects, linear and quadratic region-specific time trends, and other relevant control variables at the regional level (house prices, inflation, and unemployment rates), and our results reveal that the reform significantly reduced the number of foreclosures, but that this effect was transitory, fading six years after the reform. However, the negative effect on the mortgage loans market was permanent throughout the period under consideration.

House Prices and Marriage in Spain

“…Overall, the government should try to balance housing supply and demand with higher supervision to discourage private market monopolies [29]. This issue is especially relevant because new actors have appeared in the Spanish housing market in recent years [43,44]. Since 2013, and especially since 2017, agreements between the most important Spanish banks and foreign capital funds (such as BlackRock, Vanguard, Brookfield Asset Management, Cerberus, and Blackstone, among others) have facilitated the irruption of these private funds into the Spanish housing market.…”

“…In recent decades, there have been dramatic changes in house prices in Spain (both positive and negative), often fostered by public authorities at the local, regional, or even national level [44]. Changes in zoning and land use regulations in 1997 and 1998, an oversized construction sector, weak lending standards (loan-to-value ratios close to 100% in many cases) particularly in regional banks controlled by local political elites [45], growing demand due to the increase in the population (both nationals and foreigners, particularly in tourist regions), and the speculative behavior of some institutional and private buyers also helped to sustain the growth in house prices, housing stock, urban space, and mortgage loans [46].…”

The Indian real estate regulations and urban homebuyers: impact assessment

“…The analysis of homebuyers' litigation-related case decisions also suggests increasing complaints against builders/promoters and real estate agents for violations of agreements, construction defects, and service de ciencies. Authors with year Important features studied Gastanaga et al (1998), Berry, et al (2001), Asiedu (2002), Asiedu and Lien (2010), Büthe and Milner (2008), Mlachila andTakebe (2011), Ramsey-Musolf (2016), Glaeser (2017), Goering and Whitehead (2017), Biyase and Rooderick (2018), González-Val (2020) Policy issues and measures: Austerity measures, FDI, Financial crisis, Housing equity, Regulatory governance, Taxation issues Gibb and Hoesli (2003), Stone (2006), Gabriel (2010), Bramley (2011S), Zavei and Jusan (2012), Levitin and Wachter (2012), Singh (2013), Mulliner and Maliene (2015), Roy (2018), Kusiak (2019), Li and Chau (2019), Marsha and Stephen (2019), Haffner and Hulse (2019), Robin (2019), Breuer and Steininger (2020), Malik et al (2020) Socio-economic features: Builders' disparity treatment/ harassment, Corruption in property, Demand-supply issues, Housing affordability, Housing market assessment, Housing pricing and/ bubble formation, Poverty and housing needs, Public housing system and Mortgage instruments, Real estate business practices, User's housing motivation,…”

A Time Series Analysis of Judicial Foreclosures in Spain

“…To tackle this situation, the government and parliament introduced several new rules, reforming the banking sector and creating new instruments to protect low-income mortgage debtors at risk of eviction. González-Val (2021) used panel data models to analyze the effects of these reforms regarding the protection of mortgage debtors, concluding that the Code of Good Practice for banks and financial institutions approved in 2012 significantly reduced the number of foreclosures, but that this effect was transitory, fading six years after the reform. Moreover, this effect was uneven across regions.…”

“…Previous research has analyzed foreclosures and the loans market in Spain, considering the role played by credit enforcement (Mora-Sanguinetti et al 2017), the quality of the Spanish judicial system (Gómez-Pomar et al 2022) and public policies (González-Val 2021). The complexity of dealing with the different factors influencing the level of foreclosures (economic, financial, legal and social factors) leads us to follow an agnostic view in this paper; our approach is to let the data speak for themselves; if the foreclosure rate time series is stationary, any shock may have transitory effects on the level of foreclosures, while a unit root implies that all shocks have permanent effects, no matter the particular cause of the shock.…”