The Tribune

By NEIL HARTNELL

Tribune Business Editor

A LEADING architect of the Progressive Liberal Party's (PLP) mortgage relief plan yesterday slammed Moody's criticism of the scheme as "extremely aggressive and inappropriate", and urged the Government to "engage" the credit rating agency to ensure no "harm" was done to the Bahamas fiscal/investment reputation.

Emphasising that he was not speaking for the Government, Franklyn Wilson, chairman of Arawak Homes and the Sunshine Group, suggested that Moody's had taken the proposed plan "out of context" by not focusing on the wider commitments in the PLP's election manifesto.

Questioning the assumptions used by Moody's to arrive at its determination that the plan would cost the Government (Bahamian taxpayers) $250 million over a five-year period, and dismissing its 8.2 per cent interest rate as "foolishness", Mr Wilson insisted the mortgage relief scheme would achieve the "reverse" of the 'fiscal undermining' the rating agency fears.

Again arguing that the Bahamian economy would be unable to grow unless this nation tackled its almost-$640 million worth of mortgage arrears, Mr Wilson emphasised that the mortgage relief plan would be first agreed with the banks, then structured so as to be "fiscally prudent".

And, in a wide-ranging interview with Tribune Business, he effectively accused Moody's of ignoring elements in the plan that would "cost the Public Treasury nothing".

Saying that it would "be useful to know" how Moody's arrived at its calculation that the proposed mortgage relief plan would cost the Government $250 million, a sum equivalent to 3.1 per cent of GDP, over a five-year period, Mr Wilson said the rating agency's prediction was based on assumptions that might, or might not, be correct.

When Tribune Business pointed out that Moody's estimates were based on an 8.2 per cent interest rate applied to mortgage arrears running at 20 per cent of all outstanding credit, he replied: "That's foolishness. What Minister of Finance is going to pay 8.25 per cent on government-guaranteed debt?"

Tribune Business exclusively revealed on Wednesday how Moody's, the Wall Street credit rating agency, had expressed fears that the mortgage relief plan would "undermine" efforts to rein in a national debt pegged at $4.356 billion at year-end 2011.

It added that the plan demonstrated the Perry Christie-led administration's "lack of commitment to the fiscal consolidation measures necessary to stabilise the national debt, and is credit negative".

In response, Mr Wilson suggested that Moody's and the analyst who wrote the report, Edward Al-Hussainy, "don't know the facts". And he added of the rating agency's comments: "That is extremely aggressive and inappropriate."

Describing the PLP's Charter for Governance, which contained the 10-point mortgage relief plan, as a "philosophical document", Mr Wilson said it promised that there would be discussions with the commercial banks on the scheme prior to implementation, and that "there'll be a commitment to fiscal discipline".

"You can't take these things out of context," he told Tribune Business. "Clearly, it signals the need for the Government to engage Moody's to make sure Moody's understands the depth of the Government's commitment to fiscal discipline. They can say they don't understand it. The Government needs to make them understand it......

"The overriding point is there is clearly a need to engage these people in dialogue in the national interest, as it could harm the country. I think the Moody's comments cannot be ignored. They must be engaged, and I think it can be shown some of their comments are too aggressive."

Moody's, in its investment note, had warned: "When enacted, this legislation will constitute a substantial contingent fiscal liability to the Government, and will negatively affect the sovereign credit. We estimate the contingent cost to the Government will be up to $250 million over five years, or 3.1 per cent of 2011's GDP.

"In addition, the plan introduces an element of moral hazard into the housing finance market that may actually increase delinquencies from their current level of 20 per cent of mortgage stock, or over 9 per cent of total bank lending."

Mr Wilson, though, told Tribune Business that the mortgage scheme was designed to have the "reverse" effect on both the Bahamian economy and the Government's finances.

Emphasising that former Prime Minister Hubert Ingraham and has government failed to deliver the solution they promised back in 2008, Mr Wilson said the ranks of troubled homeowners had since swelled into "the thousands", with the issue now "too big a problem to be ignored".

"The economy of the Bahamas is unlikely to move forward until this issue is addressed," he added. "That's the first principle - to get the economy kicking in the right direction, you have to address this.

"To do this, the PLP said they must engage the financial institutions in a plan that's fiscally prudent, and which the country can afford. Those are the principles - the only principles.

"We have to slow the rate of national debt growth, reduce unemployment and have strong growth, and to do both these things you have to be fiscally prudent."

The Arawak Homes chairman was at great pains to emphasise that the mortgage relief plan was "not being forced on anyone", and that it would only be implemented following discussions - and agreement - with the Bahamian commercial banking industry and Central Bank of the Bahamas.

"It wasn't the intent of those who crafted the document that the plan be forced upon the institution, and no plan will be implemented that the country cannot afford," Mr Wilson said.

"There are a number of aspects to that plan that cost the Treasury nothing. There is no cost to giving homeowners greater legal protection here in the Bahamas; the same protection as they have in the United Kingdom.

"Show me the financial costs to the Treasury of giving the first-time homeowners Stamp Duty exemption to persons who lost their homes....

"The [Moody's] report does not comment on aspects of the plan that have a significant impact on the economy without financially draining the Treasury."

Mr Wilson told Tribune Business that the PLP's mortgage relief plan was also designed to guard against 'moral hazard'. Several Bahamas-based bankers have told Tribune Business that since the plan was announced, there had been "a sizeable jump" in mortgage loans between 31-90 days past due, and they suggested this was in part due to persons stopping payments in anticipation of a government bail-out.

"A principal point was to make sure there was no such thing," Mr Wilson added. "It was not intended to encourage slackness and abuse. If you're employed, you're not eligible for it."