A shocking rise in foreclosure-linked suicides in Spain has led to the approval of a new law preventing the eviction of families unable to pay their mortgages for two years. What good it will do remains to be seen.
More than 371,000 mortgage eviction orders have been issued since Spain's financial crisis and housing market collapse began in 2008. Officials are now trying to protect the banks while stemming suicides among desperate residents.
The law, issued by royal decree, was introduced after government officials were mobilized to action less than a week after a woman facing eviction jumped to her death from the balcony of her apartment. It applies to families making less than $2,041 per month, according to Bloomberg.
Families who fail to keep up payments on home loans must also meet other conditions to qualify for the protection from the banks. They must have at least three children or a child under three years, or be taking care of a dependent who is disabled, or be unemployed and not receiving benefits, to name a few stipulations.
But activists argue that despite this protection of sorts, the government is missing the bigger picture. They say the Spanish government isn’t addressing the indebtedness of the people who are forced out of their homes.
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Besides making families homeless at a time when nearly 26 percent of the labor force is unemployed, Spain's laws still hold those evicted liable to repay large sums, if not the full amount. It is particularly difficult in a poor economy where the value of homes have dropped, turning them over to the banks to sell for much less than their previous value, if they can be sold at all.
That’s a huge difference from the U.S., where homeowners in default surrender their houses to the banks, file for bankruptcy and start a mortgage-debt free life, albeit with ruined credit.
The mortgage default rate in Spain is reportedly 3 percent. That's an approximately 2-percentage points growth since 2007. Reports are that the Bank of Spain now has $24.4 billion worth of mortgages possibly facing nonpayment. Five years ago that number was $5.2 billion, according to the Associated Press.
The AP also reported that the Spanish government continues to work on a broader overhaul of the mortgage and property laws. It has hopes of protecting the needy through a suspension of mortgage payments for holders with an $18,400 or less annual income after taxes or individuals with expired unemployment benefits.
“We must avoid families ending up in the street as a consequence of the crisis,” said Economy Minister Luis de Guindos. “What we’re trying to do here is make sure nobody ends up without their house.”
It is unclear at this time what will happen to people once the two-year grace period up if they can’t find employment.