Re: Re: Prices in 2012/2013

#107435
Chopera
Participant

@Ardun wrote:

@Chopera wrote:

@mr bean wrote:

Mortgage hedging

Hello;
While I do not claim to have expert knowledge how a euro break-up would unfold (better to read
Willem Buiters articles), maybe one should consider the origin of the bank that holds the mortgage
as well as the currency?
If the weak countries were to leave the euro the result might be an increase in the value of the euro
versus most other currencies.
If the mortgage is held in a spanish bank then it might be converted to “new psetas”, but if held in an
english or german bank then the debt would still be in euros ?
In Hungary I believe that eventually the mortgages taken out in CHF etc were converted to HUF
but in this case the mortgage holders were local entities to austrian banks etc.
In case you have a mortgage with an “on-shore” bank maybe it would be better to hedge the euro exposure with derivatives ?

AFAIK all Spanish mortgages are registered with Spanish banks. Even if the bank “holding” the mortgage has a name like “Barclays”, “Halifax” or “Deutsche Bank” it is in fact still a Spanish bank that happens to be owned by a foreign bank, so if Spain left the euro the mortgages with those banks would also be converted to the new currency.

Are you totally sure about the converting part? The interest should be much higher on goverment bonds and the likes if that is the case.

I’m no expert but surely the whole point of a country like Spain leaving the euro would be to devalue debt (both public and private) by converting it into the new currency, otherwise there’s no point. That is, if Spain left the euro and all Spanish mortgage debt remained in euros then virtually all Spanish mortgages would become sub-prime overnight – people simply wouldn’t be able to repay them, the Spanish banks would collapse, there’d be a huge bailout and Spain would be back to square one with a huge public debt, leading to yet more devaluation, and so on. A classic debt spiral.