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Spanish Mortgage Relief Measures: Wide Perimeter, Low Impact

DBRS Morningstar released a commentary on the new Spanish mortgage relief measures. Summary highlights from the commentary include:

• DBRS Morningstar consider that the potential perimeter affected by these measures could be large, but we expect them to have little impact on banks’ profitability and provisioning. In addition, DBRS Morningstar expects the proposed measures to have a limited impact on the asset performance of RMBS portfolios.
• On November 24th, the Spanish Government approved a range of relief measures to support Spanish households, including a new code of good practices for those considered to be at risk of becoming vulnerable (in addition to other measures for vulnerable households).
• According to DBRS Morningstar, around 11% of the current balance of household mortgages in Spain’s RMBS universe of transactions could meet the required conditions to apply for the relief measures included in the new code of good practices. However, we believe that the perimeter of eligible households may be lower than 11% as the RMBS universe sample has different characteristics than the domestic stock of mortgages at the Spanish banks´ balance sheets.
• In addition, DBRS Morningstar considers that these forbearance measures are unlikely to have a sizable financial impact on banks as : i) not all eligible clients might apply for it, and ii) affected loans will not be accounted as non-performing exposures but as performing forbearance exposures within Stage 2 loans.

“DBRS Morningstar considers the new Spanish mortgage relief measures to be credit neutral for Spanish Banks, as these are financially soft” said Pablo Manzano, Vice President from the DBRS Morningstar Global Financial Group team. “Providing access to temporary payment holidays and maturity extensions to low-income borrowers in distress can reduce RMBS´ collections in the short term” said Alejandro Tendero, Assistant Vice President from the DBRS Morningstar European RMBS & Covered Bonds team. “However, this flexibility should help to reduce delinquency levels and prevent defaults.”