Mortgages: foreclosure data in Italy

Several consumer associations are warning about increase in foreclosures in Italy, that is caused by the rise in interest rates, rising also payments for who has an adjustable rate mortgage. We already talked about foreclosures, and in my opinion there is at least a contributory negligence of banks and borrowers, since many ran to the lower possible rate without considering that rates could change, and without taking in the right consideration fixed rate mortgages.

With no desire of belittleing the engagement of consumer association, that play an important role for citizens, I think it’s important to evaluate with care the data they report. I summarize them in the following table, the source is the national newspaper Corriere della Sera.

20062007+/-Var. %

(Milano is in italic since there have to be an error in the original table on Corriere della Sera, since it indicates 2297 foreclosures in 2007, but a 227 increase on 2006)

For what is worth my opinion, this table perplexes me: this was indicated as data coming from the “main jurisdictions”, but I can’t help noticing that Pinerolo is listed (with all due respect) but are missing big cities as Florence or Bologna. Thinking badly, one could imagine that these aren’t the “main jurisdictions”, but the ones where we had the higher increases in foreclosures.

There is another thing I do not agree in consumer association reasoning. They say that families with adjustable rate mortgage now face foreclosure, and bank should have guided them to fixed rate mortgage. But interests rate of a today Adjustable Rate Mortgage are similar to the rate of a Fixed Rate Mortgage applied few months ago: in fact, fixed rates are (at least at the start of the mortgage) higher than adjustable ones, since certainty has a price. But most of all banks do not make gifts, and if they give a fixed rate, this encapsulates their risk of a rate change — something that is not only in their interests but also in depositor’s. Therefore, who now is in difficulties because of Adjustable Rate Mortgage, probably couldn’t afford a Fixed Rate Mortgage when they bought the house — i.e. they bought an house they couldn’t afford.

The main problem that is the ground of foreclosures is different, much broader, harsh and complex: Italy is one of the country in the world with the more unfavorable wages/cost of living ratio, also as a consequence of an economic system that is slowly sinking, while many fight to protect their own “backyard”.

Original post (in Italian): Mutui, i dati sui pignoramenti

Banche e Risparmio []