It was the year 2007 and a very particular mortgage loan extended significantly. The multi-currency mortgage was presented as a useful tool to lower the cost of the mortgage, however, together with the clauses, land has ended up being one of the main reasons for claim related to mortgages.
The summary of this recent history of multi-currency mortgages is that it is a complex product that was marketed providing very little real information to the recipient, beyond offering, at that time, a lower interest rate than that presented by the benchmark traditional. This makes it a case that is assumed as professional malpractice since it was mandatory to report the risks presented by the product, something that was not done in the vast majority of cases.
What is a multi-currency mortgage
A multi-currency mortgage is a mortgage loan in which a currency is taken as reference, between different, so that the loan will be included in the reference currency, having to amortize the installments in that currency.
On the other hand, this mortgage loan does not refer to the traditional index on variable-rate mortgages, the Interbank, but rather to the Nibore, the interbank interest rate of the London market.
The amount of the loan was calculated in euros and transformed into the chosen reference currency, mainly Japanese, Swiss francs and, to a lesser extent, pounds. Whereupon, when the amortization of the mortgage proceeded, it had to be paid in the referential currency, including, of course, the exchange rate at all times.
At the end of the last decade, more than 60,000 mortgages were sold in our country, with the demand for cheaper repayment installments, mainly because interest rates in the reference currency countries at that time were lower. taking advantage of the strength of the euro. Obviously, what was not noticed was the double risk that these mortgages suffered : on the one hand the inherent risk of the variable rate inherent in any variable mortgage loan, and on the other hand the risk of the evolution of reference currencies, which could perfectly, as it happened, and declaring value in a scenario of a decreasing euro, and therefore lacking the price of the mortgage.
The dark part of the multi-currency mortgage
A mortgage in yen referenced to Nibore in 2008 could mean a difference of more than 35% in the amortization fee to a mortgage in euros referenced to Interbank. In some moments with the euro tremendously strong and the yen very weak this percentage became higher.
The commercial claim was evident and was based on calculating mortgage as follows: pay less for the mortgage in a framework of growth of the euro to which no ceiling is seen. On the other hand, the misleading information appeared to report half truths or directly from lies and certainly not to warn of the risks that, if they appeared in the fine print of the mortgage contracts.
In all this process of misinformation, what was not fully explained in depth was that the client happened to have a mortgage in a different currency that necessarily had to go through a process of change before amortizing the fee. This risk of change meant that, not only did the debts turn out to be astronomical, but also a tremendous instability would be generated, which could be modified from day to day, something that the users of these mortgages quickly learned from the year 2009
What happened is part of the black history of the mortgage market in our country next to the land clauses. The growth of the Japanese currency, which was called the majority of multicurrency mortgages subscribed, along with the loss of power of the euro multiplied debts exponentially.
These debts also grew with the paradox of the amortization, since in the end the user was amortizing in the accounts exclusively the cost of the exchange rate that was growing. With this, after a few years, not only had he not amortized part of the loan, in some cases he owed more money than when he started.
What was not counted in the multi-currency mortgage
Obviously if the vast majority of people who hired one of these mortgages had access to first-hand information about the complex product we were dealing with, they would not have taken the step and signed the mortgage.
However, the legitimate concern to reduce costs at a time when the economic crisis is already included, and the bad arts when it comes to reporting the dangers of the product were combined to build a mortgage watch bomb.
The first lie told about these mortgages was that they were less interesting for banks. In a kind of false paternalism in which we were offered the product for being good customers although the entity earned less.
This was false, both for the costs that we will see later, and for the spreads applied to the interest rate. These costs were initially masked in the reduction of the mortgage that supposed the difference of the value of the euro and the reference currencies, nevertheless they were expensive mortgages.
Another of the lies, or half-truths, was that of the presumption of reliability of the verbal information of bank managers. Here collided with two elements, both equally dangerous, on the one hand the real ignorance about the operation of the product by the manager, who was limited to follow the commercial guidelines that promoted some or other products by the entity. On the other hand, directly, the bad intention in trying to sell a product knowing its complexity as if it were a simple product and without risk.
As we have already indicated, the initial lie was to affirm that it was a cheap mortgage. In the first place, they were not mortgages with subrogation capacity, that is, in all cases they had to be written as new and always with high opening fees. To this we must add the traditional commissions of mortgages plus the expenses of currency exchange in rounding. These commissions could represent 0.2% of the fee with a rounding always in favor of the bank that in a mortgage loan of the normal repayment term ends up supposing a real money.
Although offered as flexible mortgages, the truth is that they were not. In addition to the compensation clauses, which we will see later, these mortgages had specific periods for the exchange of currency with the corresponding commission costs. In some cases the mortgages subscribed allowed the return of a mortgage to another currency, but not all, and in many cases the periods of revision was long enough to change tremendously to the user’s pocket even if it could return to the euro.
The compensation clause is another of its elements that undoubtedly contributed to further worsen the final result of these mortgages. These clauses came to say that when the debt exceeded 10% to 20% depending on the case of the appraised value of the home the entity could force the user to extraordinary measures that were generally aimed not at the exchange rate, which consolidated the truth but it stopped the bleeding, and without additional guarantees for the claim of money that generated the difference. If we take into account that some multi-currency mortgages have ended up in percentages even higher than 200% of the loans requested, the importance of this clause is undoubtedly enormous.
What happened with multi-currency mortgages
In the year 2015, specifically the month of June, the Supreme Court issued a ruling that has been decisive in the possibility of many victims of this type of mortgage loan access to claims before the financial entities issuing the mortgages.
In that judgment the court considered that a multi-currency mortgage was a financial instrument, this brings with it the obligation to inform the client of the risks that the product presents. Something that certainly was not done in the case of the multi-currency mortgage.
Although previously individual claims had already been made, after the judgment there was a flood of claims either in group or individual. The good news is that a good portion of these claims have ended positively for the claimants. But there is also bad news, the first is that you are dealing with generally long processes and the second is that not all cases are guaranteed success.
Generally, the claims that end in success for the client are based on the fact that the client did not really know the risks that this complex financial product had. Here, evidently, the financial profile of the person who hires the product will be relevant. Someone accustomed to finance, financial services and in general with a certain financial culture does not have the same success options in this case as someone with little financial culture since the former is supposed to have a greater knowledge of complex products. In any case, it is a complicated type of claim that deserves to be studied carefully and that one can not make a general claim about success in all claims.