Moody's: Recoveries on repossessed Spanish homes will rise further, since hitting bottom in 2013

As the stock of outstanding repossessed properties declines, recoveries will continue to improve, since bottoming out in 2013, says Moody's Investors Service in a new report published today. Recovery rates on repossessed properties have risen in parallel with an improving economy and a 5.8% increase in Spanish house prices since 2013. Mortgage loan origination shot up by 13% in Spain during 2015-14.

"Given the favourable economic backdrop, we consider that Spanish securitisation vehicles will be able to sell their repossessed properties more easily," says Carole Bernard, a Vice President and Senior Analyst at Moody's.

"Spanish mortgage loan defaults increased following the financial crisis, driving a high volume of property repossessions since 2009. When those properties failed to sell at auction, it forced Spanish residential mortgage-backed securities (RMBS) transactions to hold them. So far, losses on repossessed houses remain within our assumptions for defaulted mortgage loans, we will continue to monitor the recoveries on repossessed properties," notes Ms. Bernard.

The rating agency studied more than 14,000 repossessed and defaulted loans and analysed the sale prices of 5,008 repossessed properties in rated Spanish RMBS. Moody's estimates that 43% of all repossessed properties in the Spanish RMBS included in the study have been sold so far, compared with just 30% as of its previous study in 2013. The sales of repossessed properties averaged 34% of their original valuation.The corresponding decline in property value (66%) is greater than the peak-to-trough national house price index.

Moody's research shows that repossessed properties sold in Catalunya, where repossession volumes are large, depreciated the most. Repossessed properties sold in Murcia, Valencia and Castilla-La-Mancha, where unemployment remains high, depreciated by more than 67% of their initial valuation.

The volume of repossessed properties continues to be significantly lower than the corresponding decline in the regional house price index of the Spanish Statistical Institute (INE). The Mediterranean Coast, Andalucia and Castilla-La-Mancha have the largest differential between the repossessed property sale price and the corresponding index valuation, at more than 50% below the property indexed valuation for those regions. Northern Spain had the lowest deviation between recovery on repossessed assets and regional indexation. Coincidently, regions in Northern Spain had the lowest volume of cumulative repossessions brought to court. Recovery rates on repossessed properties improved the most in the Canary Islands, the Balearics, Castilla-La Mancha and Cataluña since 2013