The Plaza Mayor in Salamanca, Spain. Photo by Raúl Hernández González.As America struggles with foreclosures and defaults, there are now 6.5 million Americans who are over 30 days delinquent on their mortgage payments with analysts projecting this number will rise.
As a contrast, Yahoo Finance reports that 98% of mortgages in Spain are on time, so what is Spain doing that is so different than America?
In America, we all know that a foreclosure means a house goes back to the bank, the borrower is forgiven that debt in exchange for a massive credit score decline.
In Spain, when a home goes into foreclosure, not only is some or part of the debt still owed to the bank, but many mortgages allow for lenders to go after wages until the debt is fulfilled.
The two systems are drastically different yet yield completely different results. Would a harsh system like Spain’s help with the foreclosure numbers? It is highly unlikely, as the majority (not all) homeowners that go into foreclosure do so for legitimate reasons like being laid off. Penalties like this would easily stall the American housing sector.
That said, are penalties high enough in America? Some politicians are hoping that a 20% down requirement on all new loans would incentivize homeowners to stay so as not to lose their investment, while critics believe that would drastically stunt sales.
So how could penalties change in America? Some support tightened lending and more regulatory oversight, while others note that foreclosures that severely damage credit also damages the ability to buy again and especially hurts the ability to rent, as credit is a primary qualifying criteria in most of America, meaning a foreclosure limits where one can live.
The Spanish system is obviously too harsh and would never work in America, but would requiring 20% down or other “tough” measures aid in limiting foreclosures? Not likely, as we have maintained that most delinquencies aren’t by choice and that if we see unemployment numbers go down, we’ll also see defaults drop.
Jobs = housing, and the Spanish system may have few delinquencies, but they also are a nation of many poor people, with this as one of the contributing factors.
This article published on Saturday, July 23rd, 2011 at 1:21 pm | Contact the editor Tags: featured, mortgage crisis, real estate editorial, Real Estate NewsCategory: Editorials
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