On 7th December 2007 there was passed the Law 41/2007, by which it modified law 2/1981, dated 25 March, regulating the Mortgage Market and other rules of mortgage systems and financing, of regulating reverse mortgages and the insurance of dependents and also establishes some tax payer rules. The said Law came into force the day following its publication in the Official Gazette (BOE), which is to say, the 9 December 2007.
The Legislator sought, in this long awaited Law, to modernise the mortgage market and to reform a Law that had become obsolete and whose principal intention is to attempt to make the Spanish mortgage market more efficient and competitive against the more developed mortgage markets in Europe.
This Law of reform has three big challenges that are on the face of it fundamental in developing the mortgage market: i) to guarantee the liquidity necessary with competitive prices, ii) to reduce the excessive dependency of the mortgage market on variable rate loans and iii) the improvement and increased flexibility of the mortgage market, aiming in this respect to diminish the enormous rigidity which derives from the archaic interpretations of entering into mortgages, and the difficulty in innovation and creation of new products.
In addition to the previous paragraph, the Law introduces obligations of improved transparency in relation to the contracting of mortgage credit and debts. Equally, it modifies a series of regulations concerning property valuations, hoping that by doing so it will regularise the formal independence of the companies and services of valuation. And finally, the First Additional Disposition of the Law 41/2007 regulating the "Reverse Mortgages".
To tackle the modernisation of the mortgage market and confront the challenges previously mentioned, the Law inserts mechanisms of refinancing of the credit companies through the issue of mortgage bonds and bank guaranteed mortgage bonds with the aim of consolidating the market of mortgage titles. The technicalities incorporated seek, for one side, to eliminate definitively the administrative obstacles that weigh upon the figure of the mortgage bond and, for the other, widen, from the financial point of view, the sophistication of the mortgage bonds and the Bank guaranteed bonds.
On the other hand, and with the desire to achieve a greater degree of neutrality in the regulatory treatment of the diverse types of mortgage credit and debts, the Law 41/2007 establishes a new regime of compensation (at present not commissioned) for anticipated repayment, on which basis compensation to be paid by the lender must always be in relation to the real economic loss of the debtor entity.
With respect to the objective to increase flexibility of the mortgage market, there are several provisions incorporated within the new Law, amongst which are the following:
1. To generalise the possibility of guaranteeing with the floating mortgages, varied present and future legal relationships and obligations, limiting said possibility solely to entities of credit and not to any other form of creditor whatsoever. In this form, it will permit to admit new mortgage products that until now were rejected due to principles of being incidental and of determination that regulates the original mortgages;
2. To widen the interpretation of the modifying novation, considering that there exists merely an amendment and that no extinction of the legal relationship in relation to the increase or reduction of capital, alteration of the conditions of the rate of interest, and the deadline or system of repayment;
3. To simplify the content that has existed to register the right of the mortgage in the Property Register, and in doing so avoid differing registration requirements. From the time of the Law coming into force, the registration of the right will be limited to the principal sum of the debt, the interest agreed, or the maximum sum of the mortgage, identifying the guaranteed obligations and their duration; and
4. To reduce the relative customs costs deriving from the mortgage credit or loans.