How the subprime mortgage found a home in the Spanish market
29 December 2010 @ 10:46
To the rest of the world it became known as the subprime mortgage, but in Spain it is remembered as the "welcome mortgage." It was specially designed for immigrants in 2005, at the height of the property boom, by Spanish mortgage brokers such as CreditServices. With nothing more than a three-month work record in Spain, these companies offered new arrivals to Spain mortgage loans that covered 120 percent of the value of a property. All the costs, fees and commissions would be covered by the loan, and the buyer would become a Spanish homeowner without having put down so much as a cent. The loans were organized through US companies, none of which had any physical presence in Spain, preferring to use fronts such as CreditServices instead.
At one point, the company was signing around a thousand such mortgage deals each month. The US banks behind the scheme were particularly interested in the profile of CreditServices' clients because they were in no position to negotiate and accepted higher interest rates than those offered by Spanish banks, or because they were unable to decipher the complex calculations that would see their repayments rise incrementally over the years.
What's more, the immigrants weren't about to bolt: they had come to Spain for good, says Javier López, the president of CreditServices. He adds that the company offered other financial products to a range of clients, and that at its peak, CreditServices had almost 600 branches throughout Spain. It now has just 80.
There are few better analogies for Spain's boom and bust economy than CreditServices. Its rise and spectacular fall has seen it go from mortgage giant - at its peak it had some 50,000 customers a year - to debt collector. "I'm adapting the business to new realities," says López, adding: "We have come up with some new products, but they aren't as profitable." Five years on from the collapse of the property market, López says that unless Spain's banks offer refinancing terms, some seven million home owners will end up defaulting in 2011. He should know - many of them will be his subprime customers.
In October 2007, at a conference to announce Banco Santander's quarterly results, the bank's number two, Alfredo Sáenz, addressed the issue of subprime mortgages. "Of course there are subprime mortgages in Spain," he said. "It stands to reason." He then went on to add: "The criteria by which mortgages are termed subprime in the English-speaking world can be applied to Spain."