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.
Thus Spanish banks kicked the can down the road two years ago hoping that they would be able to sell of their inventory of acquired homes into a rebounding property market.
Too bad the rebound hasn't happened yet.
WSJ:
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.
In some cases, that means offering deals to consumers that are suspiciously like those that got the global housing market in trouble in the first place. The tactics include not just 100% loans, but also low initial teaser rates for buyers or initial payment deferrals for as long as three years.
They're now desperate to sell off the property assets on their books, especially since the Spanish central bank has declared that banks must increase their loan loss provisions against their property assets within a few months, fearing that Spanish banks haven't properly set up reserves against the risk of their vast property holdings.
Given that increasing loan loss provisions would force Spanish banks to recognize losses in their income statements, many are now eager to sell off their houses -- even with no monye down and low teaser interest rates, just to get them off the books and effectively convert their property assets back into loan assets. It's ironic how they initially acquired these property assets in order to do the exact opposite.
So once again, Spanish banks appear to be trying to kick the can ever further down the road and avoid recognizing losses, by offering out dirt-cheap loans whose potential losses won't have to be dealt with for another few years.
"Need a home? Now is the moment!" says Caja Madrid on it website, where it also advertises financing options and special offers, such as an apartment in the small city of Manresa, near Barcelona, for €247,000.
"Escape your old home!" says the site of Valencia-based savings bank Bancaja, which advertises no payments for as long as three years at the start of the mortgage.
Note that even the seemingly more responsible Banco Santander (STD) is in on the teaser mortgage game according to the Wall Street Journal. One has to wonder if the easy mortgages are available to Americans, because if so, then with the weaker euro it's a great time to buy that Spanish vacation property you always wanted.