Fanny Palacios didn't sleep at night as she struggled to keep her home near Madrid.
The single mother of two from Ecuador worked 12-hour night shifts caring for an elderly woman on top of her day job at a nursing home to meet her bank's deadline for 3,000 euros ($4,700) in mortgage arrears.
“This is desperation,'' says Palacios, 30. “I have to pay whatever it takes. I won't let them take my home.''
Immigrants like Palacios, drawn by Spain's once-booming construction and service industries, helped sustain the decade- long surge in house prices by scrimping and sometimes lying to qualify for mortgages. Now those last on the property ladder are losing the lives they built as the global credit shortage pushes interest rates higher.
“As each year goes by, a more and more marginal buyer comes into the market, someone who's less well able to pay back the debt because their job is less secure, or they are just poorer,'' says Simon Maughan, a London-based banking analyst at MF Global Securities. “It's going to be far, far worse than any of the banks or authorities are letting on.''
Spanish house prices fell for the first time in a decade in the second quarter as the prospect of higher central bank rates pushed the 12-month Euribor rate, the benchmark for most Spanish mortgages, to a record 5.44 percent. Property values have tripled in the past 10 years.
`Zero Growth'
There are about 5 million immigrants in Spain, making up 11 percent of the population, government figures show. More than 80 percent arrived in the past decade.
Migrants borrowed about 172 billion euros from 2005 to 2007, according to Bloomberg calculations based on data from a study by Universitat Pompeu Fabra in Barcelona and the National Statistics Institute. That was 32 percent of all lending.
Now the good times are coming to an end. On July 24, Finance Minister Pedro Solbes slashed his growth forecasts as the housing slump helped send unemployment to a 3 1/2-year high. Spain's economy will grow 1 percent in 2009, and “we may have at some point practically zero growth,'' he told reporters in Madrid.
As the slowdown bites, immigrants are the first to lose their jobs. More than 600,000 work in Spain's construction industry, up from just 25,000 a decade ago, according to government statistics. More than 1 million foreign women have service jobs such as cleaning or caring for the elderly.
Immigrants Lose First
“Companies start by laying off the immigrants,'' says Elvyra Pabon, chairwoman of the Latin American Association for Cooperation, Development and Human Rights. “Lots of people are losing their homes.''
More than a third of home purchases were made by immigrants in the first half of 2007, before the worldwide credit slowdown shut off the flow of cheap financing, according to Universitat Pompeu Fabra. They borrowed some 37 billion euros in the period.
“The banks made it so easy to borrow,'' says Idoia Ikardo, a lawyer who advises immigrants facing repossession. That led many to buy properties they couldn't afford, she says.
The Caja de Burgos savings bank told Jenny Ayala Lemos, a 38-year-old Colombian already burdened with a 15,000-euro loan after her grocery store went bust, that the 1,000-euro monthly payment on her 2006 mortgage might rise by 40 euros or even drop the following year, she says. Instead, it jumped by a third.
House-Price Slump
Some 90 percent of working-class immigrant homeowners are struggling to meet repayments, according to the San Rafael Association, which offers them legal advice and support.
These families are more exposed to the crisis because they often club together to meet mortgage requirements, with banks allowing parents, children and other relatives to sign on as guarantors, the association says. One bad loan can ruin four or five families financially, and it only takes one person to lose their job before a loan sours.
Ayala, who works in a pizzeria and baby-sits, missed her first payment to Caja de Burgos, based in the northern town of Burgos, in April after her partner's work as a van driver tapered off. That left them with a monthly income of about 1,300 euros, 50 euros less than what she owes the bank.
Ayala had two friends guarantee a 248,000-euro mortgage for her apartment in the Madrid suburb of Torrejon de Ardoz.
“We know that if we don't pay the loan, the bank will go after them,'' she says.
Variable Rates
Homebuyers in Spain are vulnerable to higher borrowing costs because more than 95 percent of mortgages have variable interest rates that are reset once a year. The European Central Bank has raised the base rate nine times since December 2005. Ayala will probably face an increase of about 140 euros a month in September when her mortgage is recalculated.
Unemployment among immigrants surged more than 50 percent in the past year as the Spanish economy reeled from higher interest rates and record oil prices, the government says. That fueled concern among analysts and immigration workers that financial pressures will exacerbate tensions between Spaniards and foreigners as they compete for a falling number of jobs.
Prime Minister Jose Luis Rodriguez Zapatero signed a European Union immigration accord last month, in which member states pledged to expel illegal immigrants and ruled out granting residency permits en masse. Zapatero granted work permits to 600,000 illegal residents in 2005.
Amnesty International, a London-based human rights group, denounced the EU agreement, as did Latin American leaders at a summit in Argentina on July 1.
Immigration Is `Good'
Zapatero's government is also planning to let migrants claim jobless benefits in a lump sum when they return to their home countries. Applications for the government's voluntary return program have quadrupled, says Ikardo, the immigration lawyer.
Economists say the government risks hurting the economy by deterring immigrants who will support demand for housing and other goods.
Immigration “is a good thing,'' says Jose Carlos Diez, chief economist at Intermoney SA in Madrid. “The faster the working population grows, the faster your potential growth.''
The policy shift is already adding to the economic carnage in the immigrant community.
Palacios, who has lived in Spain for 14 years, missed a mortgage payment to Banco Bilbao Vizcaya Argentaria SA, Spain's second-biggest bank, for the first time in January.
She says a friend who runs a real-estate agency provided her with a fake income statement to win approval for the 132,000-euro loan. Palacios's mortgage payment has risen to 700 euros a month, while her income has dropped to 500 euros. She relies on child- support payments from her ex-husband to fill the gap.
In July, she was still working illegally in a care home after allowing her work permit to expire in October. Even after her double shifts Palacios didn't have enough money. She hasn't been in contact with her bank.
“I'll chain myself to the flat to stop them taking it,'' Palacios says. “Life is tough, but I am tougher.''
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