This Doug Saunders article, one of a series of articles from Europe (the pre-2004 European Union, for whatever it's worth), describes the plight of one very unfortunate Spanish worker who got himself in over his head and now has a wrecked life. Spain, amazingly, has no personal bankruptcy law. Cadena illustrates the sorts of sufferings that my co-blogger Edward Hugh warned about before the crash.
44-year-old construction worker [Jaime Cadena] sat at the folding table in the tiny living room of his basement apartment on the outskirts of Barcelona and tried to grasp the larger meaning of a letter from the bank informing him he no longer owned the property.
The apartment will be auctioned at a fraction of the price he’d paid for it four years ago, when his fast-rising salary seemed a sure ticket to middle-class stability for his family. If a buyer is found this week, he and his four teenaged children will be evicted. As Spain has no personal-bankruptcy law, he will still owe the bank almost €200,000 – more than the current market value of the apartment – even if he loses it.
“It’s like a terrible weight I’m forced to carry,” Mr. Cadena says. “I feel like the whole country’s problems have fallen on my back.”
With an unemployment rate of nearly 20 per cent, the highest in Europe, it could be a long time before he finds more than the occasional month-long construction job. But the spending cuts launched by Mr. Zapatero this week will likely lead to reductions in the welfare and unemployment-insurance programs that were Mr. Cadena’s only hope of staying aloft until jobs materialize again.
Mr. Cadena’s family are part of an estimated 1.4 million Spaniards now facing court action over unpaid mortgages. During the late 1990s and 2000s, a freewheeling mortgage market gave Spain the highest rate of homeownership in Europe and possibly in the Western world, at 85 per cent. But property values quickly collapsed across Spain – falling more than 40 per cent in Barcelona – at the same time as 2.5 million jobs were wiped out, so there are now a million Spanish families in which all the members are unemployed.
Cadena's plight, at least as Saunders describes it, is certainly partly of his own making--what was he
thinking?--but also partly the consequences of an irresponsible financial system--what were the
banks thinking?
Mr. Cadena’s case is typical in many respects. He is, along with one-10th of all Spaniards today, an immigrant – in his case from Ecuador – who worked hard for a dozen years, married, raised a family and was stably employed enough to became naturalized. A house seemed a logical next step; in fact, his neighbours told him, it was insane to continue renting.
In 2006, a Barcelona bank offered him a “free” mortgage – with no down payment – that was offered, signed and closed in one day. His salary of €1,100 a month was combined with his wife’s earnings of €600, and the bank asked them to claim they worked weekends (they didn’t) in order to make their income appear high enough to qualify them.
Before he had a chance to think about it, Mr. Cadena was given the keys to the apartment and a 2-centimetre-thick package of fine-print pages he either couldn’t or didn’t read, and was told the mortgage payments would be €900 a month, withdrawn from his account.
He had no idea how much he’d paid for the 3-bedroom basement apartment (only this year did he realize it was an extraordinary €253,000) or the interest rate (5 per cent above prime).
The monthly payments, he soon learned, were calibrated to rise over time, first to €1,100 euros and then, in 2009, to €1,600 – a mortgage structure, also popular in the United States, that only made sense under the assumption both the borrower’s income and the house’s value would rise quickly and constantly.
They didn’t. The collapse of Spain’s property bubble coincided with the rising mortgage rates faced by Mr. Cadena (and many others). In early 2009, his construction company cut his shifts to six hours per day; in November they folded completely.