The Tribune

By NEIL HARTNELL Tribune Business Editor AN estimated 1,500-2,000 Bahamian homes have mortgage loans that are more than 90 days past due, the Clearing Banks Association (CBA) told Tribune Business yesterday, with the sector facing at least a three-five year recovery from its bad loan situation. Responding to Tribune Business's questions on behalf of the CBA, its current chairman, Anwer Sunderji, said Bahamian commercial banks presently had on their collective books some $450 million worth of mortgage loans that were regarded as 'non-performing' or over 90 days past due. That sum increased by a further $58 million during the 2011 full-year, highlighting the growing difficulties that an ever-increasing number of Bahamian homeowners are having in meeting their debt repayment obligations. The CBA's statistics further add to the impression of a depressed housing market created by FINCO's recent 27-page 'distressed properties' pull-out, and the Bahamas Mortgage Corporation's (BMC) continuing woes. Noting that the oversupply of 'distressed properties' would impact Bahamian real estate prices into "the medium term", Mr Sunderji, on the CBA's behalf, told Tribune Business it was taking an average "of two years or more" for banks to find buyers for homes they had repossessed. And, apart from the difficulty in finding qualified buyers in a depressed economy with tightened lending conditions, the CBA chairman also criticised Bahamian utility companies for making the disposal of distressed properties even more tortuous. By failing to cut off the likes of electricity and water supplies to already-delinquent customers, Mr Sunderji and the CBA explained that Bahamian commercial banks were forced to themselves pay-off these outstanding bills before they could see distressed properties. This further eroded their ability to recover the full mortgage loan value. And, apart from the utilities, the CBA also took a swipe at unregulated lenders such as furniture/appliance stores and used car dealers, arguing that they did not have to observe the borrower debt service and prudential lending ratios enforced by the Central Bank of the Bahamas. The CBA, though, acknowledged that it may have itself contributed to the current high mortgage delinquency levels through providing loans with zero to minimal equity downpayments by borrowers during the economic boom of the mid-2000s. This is likely to have put credit into the hands of some Bahamians who should never have qualified to receive it. Underlining the severity of Bahamian housing market difficulties, Mr Sunderji said on the CBA's behalf: "Approximately $450 million of mortgage loans are more than 90 days past due. It is estimated that anywhere between 1,500 and 2,000 properties may be affected, and to the extent that restructuring efforts fail, the industry would be seeking to sell some of these properties. "This large over-hang of bank offered properties will likely negatively impact the private sector housing segment in the $200,000 to $700,000 range, and until the bank inventory is reduced, home prices will likely languish in the medium term." The CBA acknowledged that the Bahamian mortgage industry "has been particularly badly hit with high loan arrears and delinquency", a trend seen in the US and throughout. It conceded: "This is partly due to the financial industry in the mid-2000s offering mortgages with low down payments to borrowers to assist them in owning a home. "Unfortunately, however, whereas the banking industry employed prudential lending standards as proscribed by the Central Bank, there are many unregulated lenders (furniture and appliance stores, used car dealers) some of whom have extended financing to borrowers where the debt service ratio exceeds levels that banks use with the result that Bahamian borrowers have too much debt and a modest decline in their financial circumstances tips them into delinquency." Mr Sunderji said Bahamian borrowers owe the CBA's members - Royal Bank of Canada (FINCO); Scotiabank; CIBC FirstCaribbean International Bank (Bahamas); Commonwealth Bank; Bank of the Bahamas International; Fidelity Bank (Bahamas); and Citibank some $6.4 billion. Of this sum, mortgages account for $3 billion and consumer loans $2.1 billion. The CBA chairman said the industry's recovery was inextricably linked to that of the Bahamian and world economies, especially an improvement in employment and income levels at home. It would not take place any time soon. "The recovery in asset quality and lower levels of arrears will likely take between three to five years," Mr Sunderji told Tribune Business. " But it is very dependent on improving employment levels, and it is equally possible that recovery could take longer. "Total loan arrears grew in 2011 by a disappointing $69 million, or some 6 per cent, reflecting the ongoing trend of high unemployment. This deterioration was primarily in non-performing loans, and especially in mortgages, where non-performing loans increased by $58 million in the course of the year." When it came to disposing of distressed properties, and exercising their power of sale under the mortgage loan terms, Bahamian commercial banks told Tribune Business that the situation had been "compounded by the fact that it takes up to two years or more to find a qualified buyer for one of the affected properties. "[This] results in the delinquent borrowers being able to live for an extended period of time in the property without servicing their debts." And Mr Sunderji, in his response on the CBA's behalf, identified further complications facing the Bahamian commercial banking industry. "The legal process of selling a delinquent property under the power of sale is well established in the Bahamas," he added. "However, there are limited qualified buyers that meet the tighter credit standards and qualify for a loan to purchase a property. "In addition, utility companies do not exercise their responsibility in curtailing supply to delinquent customers, with the result that the financial industry has to discharge these outstanding utility bills (frequently running into thousands of dollars) before a property can be sold, adding to the shortfall in recovery."