The Tribune

By NEIL HARTNELL Tribune Business Editor THE Government was yesterday urged to invest $100-$150 million into a Foreclosure Trust as a way to solve this nation's mortgage/housing crisis, a well-known businessman telling Tribune Business that the returns generated for it and Bahamian society would be "much greater" than all the ongoing infrastructure projects. Dr Johnathan Rodgers, the 'eye' doctor and key behind-the-scenes planner for the Democratic National Alliance (DNA), in a column sent to this newspaper (published on Page 5B today), said that with $450 million of commercial bank mortgage loans some 90 days past due, the Bahamas faced being stuck with a depressed housing market "for some time to come". This, in turn, would reduce economic activity and earnings for sectors such as real estate, construction and attorneys, plus depress tax and utility bill payments, prompting Dr Rodgers to unveil a three-pronged solution. Apart from calling for a further cut in the benchmark Bahamian Prime interest rate by the Central Bank, and for the commercial banks to take a 'haircut' on the value of their distressed mortgage loans, Dr Rodgers also urged the Government to create a Foreclosure Trust Fund. This Fund, he suggested, would be employed to acquire distressed mortgage loans (those over 90 days past due, and upon which interest has stopped accruing) at a discount from Bahamian commercial banks. The original loan would then be refinanced at a lower rate, likely 3-5 per cent, something Dr Rodgers said would help most families remain in their home by making repayments more affordable. Asked by Tribune Business how the Government could possibly afford to establish such a fund, given its fiscal predicament and the fact some $450 million worth of commercial bank mortgages were non-performing, Dr Rodgers conceded that not all loans could be rescued. "You're trying to save those you can," he acknowledged. "You can't save all of the mortgages. Some of them are going to go down because people have no jobs and no monies at all." Questioned on what would be needed to initially capitalise a Foreclosure Trust Fund, Dr Rodgers told Tribune Business: "You'd need to put in $100-$150 million. But government is spending a lot of money on infrastructure, some of which is needed, and some of which is not needed. "Most of it is needed, but the Airport Gateway road from the airport to the stadium is not needed right now. They could have used some of that money and put it into a Foreclosure Trust Fund." As for other financing sources for such a Fund, Dr Rodgers pointed to what he said was an annual $200 million saving the Government could enjoy if it appointed a National Procurement Unit and cut down on "wastage" in its spending. Private investment, via various capital market instruments, was another potential financing source. "My point is this," Dr Rodgers told Tribune Business. "You look at the return on infrastructure work compared to the social dislocation you get if people lose their homes. They're no longer paying their utility bills, maintaining their properties.... You're talking about a lot of lost revenue for the country. "It behooves the Government to purchase those distressed home loans at a discount, refinance those loans, keep people in their homes. The return on that is much greater, to a larger extent, in maintaining activity in the economy than the return on infrastructure work that they're doing right now." Tribune Business revealed last week how Clearing Banks Association (CBA) members have a total 1,500-2,000 homeowner clients with mortgages that are more than 90 days past due, with no recovery in sight for at least three-five years. Another $58 million worth of mortgages fell into the non-performing category in 2011. "You're taking away the main component of the Bahamian dream when people lose their home," Dr Rodgers told this newspaper yesterday. "The banks themselves need to take a bit of a haircut, as it's better to have half an apple than no apple at all." Asked whether his demand for a further cut in Bahamian Prime would merely transfer wealth from savers to borrowers, and not act as an economic stimulus, he replied: "It'll be a transfer of wealth from the banks to the Bahamian people." Dr Rodgers said the Bahamian commercial banking industry had "one of the biggest spreads" between loan and deposit rates in the world. "The Bahamas has been very good to the banks over the years," he added, "especially the Canadian-owned banks, and now it's time for the Canadian banks to show heart and give back to the community which made them profitable." The Bahamas, Dr Rodgers told Tribune Business, was "the only place" that did not cut interest rates "soon enough and to a large enough extent to make it more reasonable for those trying to survive in this country today". When asked by this newspaper whether that would lead to an unsustainable credit expansion, and significant foreign currency outflows from the Bahamas, he replied that the Central Bank of the Bahamas had more than $890 million in foreign exchange reserves as at end-December 2011. "The reserves are not an issue," Dr Rodgers told Tribune Business. "The middle class has been wiped out. They are just trying to survive, and you need to bring interest rates down so people can live to fight another day. The cost of living is too high." The businessman identified the Bahamas' tax structure; high utility and energy costs; exchange controls; and the cost of capital as the main factors behind this nation's relatively high living costs. "Those four make living in the Bahamas difficult for everyone at the best of times, but at the worst of times they cause structural inflation," Dr Rodgers added.