Barcelona City Council is promoting new measures to protect families affected by the mortgage crisis and who are at risk of housing exclusion. For this reason, last October, the Full Council Meeting approved a proposal demanding greater transparency from banks concerning securitised mortgages.
Due to the 2008 economic crisis, many banks resorted to what is known as “mortgage securitisation”, a process in which mortgages are sold to third parties in order to reduce risk. The bank therefore ensured payment of the interest paid by the client, but transferred the risk of non-payment to another entity (a company, an investment fund, etc.) which became the owner of the mortgage holder’s debt.
However, many financial institutions securitised their clients’ mortgages without informing them. As a result, thousands of families have been affected by the new conditions of their mortgage contracts, conditions which are often abusive and could result in eviction due to non-payment.
The Full Council’s proposal calls for the legal modifications needed in order to ensure that the affected families have access to clear information and documentation that specifies whether their mortgage has been securitised.
Initiative to ensure access to mortgage information
The City Council’s proposal calls for various bodies, financial institutions, the judiciary and public institutions to help in achieving greater transparency and accessibility in the management of information concerning securitised mortgages. The various measures proposed include:
- Calling on the National Stock Market Commission to act as a real public registry, organising all the official documentation. The aim is for families affected by securitisation to be able to access all relevant information and find out who their mortgage has been sold to and under what conditions.
- It calls for legislators to make the appropriate legal modifications so that it becomes obligatory to register the transfer of ownership of a mortgage loan in the Property Registry. This would provide more guarantees for affected mortgage holders.
- The financial entities are requested to make the tangible assets ratio for their securitisation fund public (on their websites, in addition to the fund’s documents and articles of association).
This agreement will be communicated to Barcelona’s Higher Court so that, if necessary, the suspension of mortgage foreclosures (evictions) can be agreed until each financial institution certifies whether the loan in question has been securitised or not.
The final objective is for the different administrative levels, within the limits of their competencies, to be able to offer action and protective measures to people affected by these financial practices. In this sense, it also calls for Barcelona Provincial Council and the Generalitat of Catalonia to respond to requests from people under threat of mortgage foreclosure.
Mortgage securitisation came into being with Act 19/1992 concerning both Property Investment Companies and Funds and Mortgage Securitisation Funds.
When someone acquires a mortgage, the bank provides them with money based on certain interest rates. However, in parallel, many institutions begin an extremely complex process of dividing up the mortgage debt into various packages and selling them on secondary markets. The bank aims to ensure the return of the loan without the risk of losing the money while also increasing its liquidity.
In accordance with current legislation, from the moment at which the mortgage holder is no longer able to pay their mortgage instalments, the bank can seize the property and call for the eviction of the people living there. However, in reality, with securitised mortgages, the bank has already sold the loan and therefore is no longer the owner of the mortgage and cannot claim it.
For this reason, various associations of affected people, organisations and institutions such as Barcelona City Council are calling on the State to prevent banking institutions from seizing properties if they have not previously provided information concerning any changes in mortgage ownership.