According to the experts, the federal government has not extended the term of the law on protection of borrowers because of loan defaults and cancellations. This should also increase the number of foreclosures considerably.
Since around 90,000 foreclosures took place in 2008 due to the economic crisis, this number has steadily decreased – until it had decreased to just 18,000 in 2019, explains the Berliner Zeitung (BZ). Now the economic consequences of the Corona crisis are likely to increase again, as banks and savings banks are seeing many contract terminations coming up.
Private construction financing can no longer be financed
In March, the federal government passed a law that was intended to compensate for the inability to pay due to the failure to pay wages. Banks and savings banks were legally obliged to carry out requested deferrals for the period from March to June 2020. This period has now expired – and not only BaFin sees a wave of foreclosures on insolvent borrowers in the coming years:
“Due to the pandemic, many sectors such as trade fair construction, hotels and catering will see bankruptcies. The associated unemployment will burst private construction finance. ” With these words, BZ quotes Axel Mohr, the head of the business information service Argetra, known for his expertise in foreclosures.
Several 100,000 loans have been deferred since March
According to the BZ, several hundred thousand private loans were deferred during the period of validity of the Federal Government’s Borrower Protection Act: the savings banks alone had 190,000 loans, and the Deutsche Bank and Commerzbank also had over 100,000 additional loans.
The borrowers now have to repay these deferred loan payments – those who cannot do so are warned, and then the contract is terminated. This is often followed by a forced auction.
Number of foreclosures decreased in H1 2020
According to the development of the number of foreclosures since 2008, according to Mohr, the number of foreclosures fell nationwide in the first half of the year (H1) 2020, writes the BZ. However, this is not a trend that will continue, but ascribed to formal reasons: a forced auction could only be carried out six months after a loan was terminated. “I expect a significant increase of at least 20 percent next year,” said Mohr.
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And while the Federal Association for Loan Purchasing and Servicing (BKS) even predicts a three-fold increase in loan defaults in the next three years to up to EUR 100 billion, BaFin CEO Felix Hufeld is quoted by Reuters: “Larger loan defaults can still occur […] I expect this to happen in several waves this and the coming years ”- especially if a second wave of the virus soon paralyzes the economy again.
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