Spain approved measures on Thursday to help the most needy families facing eviction, a growing problem in the recession-bound nation highlighted last week by the suicide of a woman whose home bailiffs came to seize.
The government said it would suspend evictions for two years for vulnerable homeowners who can no longer pay back debt, including those with small children, the disabled and long-term unemployed.
"This is an emergency response to mitigate the effects of the worst of the economic crisis," Deputy Prime Minister Soraya Saenz de Santamaria said at a weekly press conference.
In a country where a million homes lie empty, the legacy of a decade-long housing boom that crashed in 2008, she said the government would also increase the amount of social housing available at low rents for people who have lost their homes.
The Spanish banking association (AEB) said its members understood the latest measures, but noted that their cost would fall exclusively on the banks.
The AEB agreed with the government last week to suspend evictions for two years for those most in need.
Spanish banks, many of which are about to receive the first funds from a 100 billion euro ($127 billion) credit line from a European bailout, have repossessed 400,000 properties since 2008, though not all of those are residential.
The trend is growing, with 50,000 repossessions in the first half of this year, compared with 77,000 for the whole of 2011.
Though most evictions following the real estate crash involved immigrants, more Spaniards are now losing their homes, experts say, as unemployment benefit runs out and family networks fray in the worst recession in half a century.
"Over the last year, more and more Spaniards have been affected rather than immigrants who have less family support," said Mauricio Valiente, a lawyer who helps evicted people.
The death last Friday of 53-year-old Amaia Egana, who jumped from her fourth-floor flat in the Basque Country as bailiffs came to turn her out of her home, grabbed headlines and pushed the issue to the top of the political agenda.
It was the second such suicide in as many months.
The eviction moratorium will apply only to families with household income of less than 19,200 euros a year.
The government is wary of creating the image that Spain is relaxing rules on the payment of mortgage debt. Economy Minister Luis de Guindos said the measures would not have an effect on the Spanish mortgage market.
"The problem in Spain is not residential mortgages but loans to real estate developers," he said. Developers owe nearly 300 billion euros to banks, about 30 percent of gross domestic product.
Mortgage law in Spain is among the toughest in Europe. Homeowners remain liable for what they owe on their loan, even after returning the house to the bank, if the value of the house does not cancel out the entire mortgage debt.
In a country where home ownership is over 80 percent, residential mortgages classified as doubtful at end-June stood at 3 percent of the total, a fraction of the 27 percent classed as doubtful on loans to real estate developers, Bank of Spain data shows.
By contrast, 11 percent of residential mortgages in Ireland—also suffering the aftermath of a housing crash—were in default at end-June.
A point of concern for investors is that any change in the mortgage law could affect mortgage-backed bonds, a major source of financing for Spanish banks.
Spanish banks have 426 billion euros of these securities in circulation, according to the Spanish Mortgage Association, with a large part parked in the European Central Bank as collateral for funding.
If rules were relaxed on paying back mortgages, defaults could shoot up, weakening the loans backing these securities.
But borrowers facing eviction will already be several months, perhaps years, in arrears, and a moratorium for the most needy would not affect covered bonds, analysts said, as these loans would probably already have been written off by banks.
"What would concern investors is if a change in law reduces collateral to issue mortgage-backed bonds in the market or access the European Central Bank," said Bernd Volk, covered bond analyst at Deutsche Bank. "But I can't see this happening because of a freeze in foreclosures."