The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

THE $10 million allocated by the government towards its Mortgage Relief Plan is ‘an absolute drop in the bucket’, considering the current value of at-risk mortgages according to former Bahamas Mortgage Corporation Chairman Dr Duane Sands who claimed the plan amounted to ‘tokenism’.

On Wednesday the government laid out the parameters of the plan, minister Michael Halkitis later telling Tribune Business that it had allocated roughly $10 million to the plan with some 1,500 persons qualifying for mortgage relief.

Speaking about the government initiative Dr Sands told Tribune Business: “Certainly it doesn’t go terribly far to address the magnitude of the problem in the country. It most certainly does not address the concerns of the huge number of individuals who are suffering from mortgage issues and who were anticipating real relief because this plan definitely does not help them. If you look at $10 million and the number and value of at risk mortgages in the community, it is an absolute drop in the bucket. Furthermore the people that qualify are those individuals who were having their mortgages restructured in the first instance and so I guess we take it as a bit of a compliment that the Progressive Liberal Party has realised that prudence ought to prevail and they ought to continue on a reasonable course as opposed to the irresponsible rhetoric that they were using before the election and since then.”

Dr Sands added: “The unfortunate part about this is that the overwhelming majority of people that have challenges with their mortgages remain with a problem and so if this is the sum total of the relief plan then ‘Houston, we have a problem!’

“This is tokenism, this is simply saying we said we would do something and we did something but it is something that does not benefit the overwhelming majority of people who expected something real and so once again the public has been sold a bill of goods.

“We have kicked the problem down the road aways maybe a few months, maybe a year, but judgment day on this issue is coming. What we do not want is to get in a position whereby one of these banking institutions finds itself in a default mode or is insolvent because the ripple effect that will have on the economy is going to be tremendous.”

According to Michael Halkitis, the government will launch the plan in the first week of September. During his contribution in the House of Assembly Mr Halkitis said requirements for eligibility under the plan were: Owner occupied primary residential properties only, including owner occupied duplexes, not vacant lots or revenue generating/ investment properties; mortgages originating prior to January 1, 2009; outstanding mortgage principal amounts not exceeding $500,000; acceptable credit history prior to June 30, 2008 and loans that are delinquent due to documented financial hardship caused by involuntary unemployment or chronic illness.

Mortgages must also have sufficient sustainable documented and verifiable income to support the restructured payment and lenders must have a valid first and possibly second mortgage and the property is clear of other mortgages or loans.

Mr Halkitis also said the borrower would have to sign a forbearance agreement and perhaps new loan contracts that outline the extent of their obligations and the results of any breach.

“The format and content of these agreements are being finalised with the government in consultation with other stakeholders to ensure compliance with legal, accounting and regulatory compliance,” said Mr Halkitis.

“Individuals wishing to take part in the mortgage relief plan will apply through their lender, the lender would review each applying borrower’s circumstances and determine what an affordable mortgage is, given the reduced income of the borrower.

“The difference between this affordable amount and the actual mortgage would be the gap which would be addressed by the plan through rewriting their mortgage loan into two loans, a serviceable loan and deferred loan. The government would contribute an amount equal to one third of the actual mortgage balance and what the client can service up to $7,500 to permanently reduce the balance of the deferred loan and the client’s total mortgage debt. The lender would rewrite the remaining difference, a minimum of two thirds of the gap on a separate loan at zero per cent for up to three years.

“The debt would continue to be secured by the same real estate security hover there would be no principal payment requirement for a minimum of three years. The lender would then restore the remaining total serviceable mortgage debt over an appropriate term and at market interest rates. The loan term would be accessed on several factors including age of the borrower and sustainability of income,” said Mr Halkitis.

Mr Halkitis added: “If the joint government funding of up to a maximum of $7,500 and the lender deferral does not equal an amount equal to the gap debt the borrower would have the opportunity to cover the shortfall from other sources before being denied eligibility into the plan. In any event borrowers would have the right to appeal any decision by the lender to a panel appointed by the lender. The government will contribute an administrative fee of $100 per borrower to fund the cost associated with the restructure of the loan. The government will agree to waive any stamp tax that a will be incurred in registering the standard documents related to the plans and agree to a protocol to provide a waiver of duty on many other document which the lend might deem necessary to register for an individual to benefit from the plan, for example documents related to debt consolidation. The borrower’s financial circumstances will be reviewed annually to determine if their financial circumstances have sufficiently changed to provide for payments on all or a portion of the outstanding deferred debt. The borrower remains obligated for the full amount and a mortgage remains registered on a property for the full amount.”

Under the plan the lender would recover full principal when (a) the borrower pays the lender in full,(b) the borrower’s circumstances improve allowing for regular payments, (c) the borrower sells the house or (d) the borrower passes way and the lender is repaid by an insurance policy or when the house is conveyed to the heirs or is sold. A breach of the agreement by the borrower including failure to disclose relevant financial information, any delinquent payments on the restructured debt would result in the full amount including the deferred amount being due in full immediately and the lender would proceed with its standard security realisation process.