The code is voluntary, but the banks that do sign it will be required to offer a series of measures that will be applied progressively for defaulting mortgage holders who meet a number of criteria, including that all household members are unemployed and that the property is worth less than a certain amount, depending on its location.
Firstly, homeowners in trouble may apply to have their loan restructured, which may include paying only the interest on the loan for four years, extending the loan to up to 40 years and reducing the “applicable interest rate on the loan to 0.25 percentage points above the benchmark Euribor rate“.
When restructuring is insufficient and mortgage payments amount to more than 60% of household income, the debt may be reduced (una quita).
The final resort is dación en pago, or deed in lieu of foreclosure, in which case the property is given in exchange for the debt being fully discharged. In this case, the family may continue living in the property for at least two years while paying a rent of 3% of the outstanding debt.
Importantly, the measures are for current mortgages and not just for new loans.
Just about everyone is unhappy with the code, which is not necessarily a bad sign.
Consumer groups say that it doesn’t go far enough and that “it will only serve to resolve an insignificant number of eviction problems that are of interest to the banks” and the banks claim that it’s not their job to fix social problems and that the government should be looking to implement measures that tackle the causes and not the effects.
Although, if you accept that some mortgage loans might have been handed out just a little irresponsibly before the crisis hit and the roof caved in, you could argue that the measure is aimed at the cause of the problem, or at least at righting a wrong to some degree.
The key to the measure having any effect at all is, of course, that some banks at least, if not the majority, take up this code.
Despite their grumbling, several banks had already declared that they would offer dación en pago on mortgage loans, and BBVA did recently cancel a couple’s mortgage in exchange for their property.
Who knows? Maybe the banks aren’t such evil beasts after all :).