Hold That Writ

We pretty much figured out the editorial quality of right wing standard bearer, El Mundo, ten years ago when they published a back page item in which the writer, apparently chagrined over some perceived insult by an American official, referred to the United States as 'a country created by drunken Irishmen'. We, nonetheless, still occasionally consult the pages of what is often touted as the only domestic newspaper that undertakes investigative journalism. This is more a commentary on the rest than a feather in PJ's cap, by the way. El Mundo can only fairly be described as the brainchild of a secret tryst involving Cardinal Ratzinger, Ana Botella and Ambrose Evans-Pritchard.

Yesterday, under the typically dubious headline 'Mortgage defaults* double in one year' we find that the Spanish Mortgage Association has reported that said default rate had risen, year-on-year through September, from 1.84% to 3.04%. That this 65% rise is 'double' implies that the writer would accept 35% as 'unchanged' is secondary. More interesting by far is this third quarter report on defaults from said trade group, known as the AHE in Spanish.

Suffering, as does the item, from a serious lack of definition of terms, a table on page 3 nonetheless tells us that the default plus probable default rate for home mortgages through September stood at 2.99% (El Mundo in its attempt to squeeze blood from a stone quoted the insignificantly higher rate of off-mortgage credits associated with buying a house - co-signed by the parents, and the like - to get it over 3% so that they could call it 'double').

Notwithstanding that this rate did more than duplicate itself from June 2008 to one year later (since rising a statistically irrelevant 0.02%, as an aside), this figure falls far short of the end-of-the-world scenario predicted by the great bulk of uninformed commentators (being the great bulk of commentators, if the reader hadn't noticed). We believe that our prior insistences that falling values, and even a nominally collapsed national economy, would not bring floods of individually foreclosed homes onto the market at any price is being borne out.

Mortgage lending now dismissed as a threat, what have been disastrous for financial institutions are the loans they made further up the real estate food chain. The last two tables of the report show that credit extended to promotors and builders is doubtful to the tune of more than 8 percent in both cases.

The tables also do us the favour of showing which type of institutions are most affected. Except for the negligibly important category of 'loans for home renovations', the cajas de ahorros - comprising about half of the Spanish banking industry - are holding (at times considerably) more garbage than the banks. Combine this with their dominant position in coastal areas - where the prospects of actually selling a home are, ummm, limited - and one would love to be able to put on a bank-caja spread. And hold it for about a decade.

With their default rate of 1.81%, the big winners in the risk control game are the holders of 10 percent of the mortgage market. The cajas rurales, which are the bulk of what the AHE calls 'cooperative banks', are the provincially-amalgamated descendants of the mini-banking operations of individual agricultural co-ops. Their main business was originally to lend money against crops. Being perpetually sleepy and slow-moving sure looks like a good long term plan, does the reader not agree?

*Note also that El Mundo describes as 'morosidad' ('default' in Spanish) for what the report terms 'dudosidad'. This means 'doubtful' and certainly includes mortgages in arrears but not to the point of permitting foreclosure.

-------------------------------