DBRS commented yesterday (Thursday) on mortgage law reforms proposed last week by Spain’s ministry for economy and competitiveness, saying that if the measures were implemented they would have only a limited impact on the Spanish mortgage market.

The proposal includes a 30 year maturity limit on cover pool assets. The rating agency said that impact of the limit on Spanish cédulas is uncertain, as it depends on where the cap is imposed, and details on that have not yet been clarified by the Spanish authorities. If the limitation applies to the remaining maturity of the loans, then it could marginally improve the asset liability profile (ALM) of the cédulas, said DBRS. If the limitation applies to the original maturity, the impact on ALM would depend on the distribution of the remaining maturity of these loans, it added.

The impact on cédulas would also depends on whether the 30 year cap applies to the eligible cover pool upon which a mandatory 25% overcollateralisation (OC) is determined, or on the mortgage book backing the cédulas. In the first scenario, issuers may need to amortise some cédulas early, and this could increase available OC, said DBRS. OC could drop if the cap is imposed on the mortgage book instead, and this would be negative for cédulas holders, it added.

The proposal also includes measures to mitigate actions taken against defaulting mortgagors, such as partial debt forgiveness for troubled borrowers able to pay 65% of the outstanding debt within five years of foreclosure, an increase in the number of missed payments that trigger property repossession, and a reduction in the interest rate on delinquent amounts. However, DBRS noted that Spanish lenders are already applying similar market practices so the impact of these measures on the Spanish mortgage market would be limited.

In spite of this, DBRS noted that the announcement of the mortgage law reforms came after a decree allowing a two year eviction moratorium for weak borrowers was passed in November, and said that if the reforming trend continues it could have a negative influence on investor confidence in the Spanish covered bond market.