Subprime mortgages in Spain: do they exist?

Academics
IE Focus - Subprime mortgages in SpainIE Focus | By Antonio Rivela and Ignacio de la Torre. Professors. IE Business School
In spite of the real estate bubble, Spain has suffered relatively little fallout from subprime mortgages. Is that because they don’t exist? They exist alright, but they are well controlled.
When commenting on how a high-risk mortgage (subprime) was turned into a fantastic AAA-rated bond backed by prestigious rating agencies through the magical art of financial engineering, the prestigious North American investor, Warren Buffett, said “you can´t make a silk purse out of sow’s ear”. A subprime mortgage is a mortgage loan awarded by banks to customers that have no credit record and, in many cases, no proven income. This process for converting “sow’s ears into silk purses” (the mutation of subprime mortgages into bonds with the highest possible credit rating) was implemented through securitisations and it is of key importance for understanding the financial debacle facing the West.

However, many foreign analysts are asking why the subprime hurricane has had hardly any effect on the Spanish market in comparison with its impact on the North American or British banking market if, in theory, Spain was on a similar track (housing price bubble, high credit penetration and runaway foreign deficit). Although many have responded to this question with apocalyptic visions, it is our opinion that the actual situation is much less dramatic. In this article, we will make a detailed analysis of this opinion as objectively as possible.

As was pointed out by Alfredo Sáenz, CEO of Banco Santander, subprime mortgages do exist in Spain. However, his statement needs to be explained: yes, they do exist, but to a much lesser extent than in other markets. Where do they come from? There are two basic ways in which the subprime disease can be caught: by awarding subprime mortgages or by buying securitisations linked to subprime risk. If we analyse the first of the phenomena, there are four very good reasons why hardly any subprime mortgages have been awarded in Spain:

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Liquid technology

Academics
1739IE Focus | By Enrique Dans, Professor at IE Business School
Politicians, entrepreneurs, and even some governments are trying to hamper the advance of technology. But technology is like liquid in that it can seep through into every aspect of our lives.
Liquids are known for their ability to always adapt to the cavity that contains them and for penetrating permeable surfaces. Modern-day technology is like a solid: it exists in watertight, well-defined compartments. It is associated with specific devices, specific functions and specific sectors of the public. There are generations that are impervious to technology, that refuse to soak it up as if it were trying to replace or detract from rather than complement their activities.

There are politicians who try to stop it, as if that were possible, as if those who oppose technological progress had ever won a battle against it. There are companies who confine it to specific functional areas or restrict it to specific personnel and there are even countries who try to block it so that citizens cannot gain access to it. We constantly come up against situations in which our options for using technology as we would like are scant or even non-existent due to not having access to a certain device, not having connectivity or a power supply, or to pure and simple ignorance.

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