GO
Loading...

Walking Away in Spain

CNBC.com

You can now walk away from your house in Spain—even if it has negative equity—just like you can in America.

Historically, the so-called jingle mail phenomenon—where borrowers walked away from mortgages when they were underwater—was relatively rare in Spain. The reason was simple: Spanish banks had 'full recourse' to go after the defaulting creditor's futures assets—often for decades.

A Spanish judge seems to have just struck down that precedent.

Tracy Alloway covers the story in a post on the Financial Times blog Alphaville —and addresses some of the issues that will inevitably arise out of the situation.

Right now there seem to be more questions than answers.

Fitch Ratings seems to be withholding judgment for the moment: the Alphaville quotes a Fitch press release: "Fitch will not revisit its default or recovery assumptions until the potential implications of the isolated ruling are fully clarified."

The reason for the non-reaction from Fitch appears to be the belief that the ruling will not stand. Again, from the Fitch statement: "Fitch understands that the legal ruling made by the judge in Navarra contravenes the Spanish Mortgage Law and Civil Code. Consequently, Fitch expects that the lender's appeal will overturn the initial sentence."

But then, if the ruling does stand: "However, if the appeal is unsuccessful, it would create an important and material precedent, which would potentially force Fitch to review its current assumptions on the market."

What impact that would have on the Spanish banking system remains to be seen—but it is difficult to imagine that the markets would view it as a positive development for Spanish banks.

_________________________________________________

Questions? Comments? Email us atNetNet@cnbc.com

Follow NetNet on Twitter @ twitter.com/CNBCnetnet

Facebook us @ www.facebook.com/NetNetCNBC

Wall Street