The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading architect of the Government’s mortgage relief plan has described criticisms that it will not have the advertised effect as “legitimate enough”, while arguing that it would “be a good start” even if just 20-25 per cent of delinquent borrowers were assisted.

Franklyn Wilson, Arawak Homes’ chairman, acknowledged to Tribune Business in a recent interview that “it would be better if 100 per cent” of the almost 5,000 homes that are delinquent on their mortgages were brought back into good standing, but said the effort was worthwhile nonetheless.

His comments came just before the Government yesterday unveiled the mortgage relief plan that has been agreed with the Clearing Banks Association (CBA) and the Central Bank of the Bahamas, the initiative having been vastly watered down from the Progressive Liberal Party’s (PLP) pre-election promises.

The Government’s opponents were again quick to seize upon this, with Dr Duane Sands, the former Bahamas Mortgage Corporation (BMC) chairman, describing the final version as having :no resemblance whatsoever” to the PLP’s initial promises.

He added that the $10 million the Government has promised to allocate to the plan would “do precious little” to help revive the economy, especially given that it was up against an “abyss” in the form of $660 million worth of past due mortgages.

Conceding that Arawak Homes’ business was “flat” year-over-year, and that “nothing is happening” in the Bahamian housing market, Mr Wilson meanwhile acknowledged the criticism being directed towards the mortgage relief plan.

“The mortgage foreclosure thing, people are criticising it that it does not do enough,” Mr Wilson told Tribune Business.

“All those concerns are there, and they’re legitimate enough. But if approximately 20-25 per cent of the homes in foreclosure disappear off the market, that would not hurt.

“It will be better if 50 per cent, 100 per cent, disappear. That would be better, but 20-25 per cent will be a good start. If it works out well, and 20-25 per cent of the person with homes in foreclosure have a chance, that’s a good start.”

That percentage appears to be accurate, based on data made public. Tanya McCartney, FINCO’s managing director, told Tribune Business in a recent interview that Bahamian commercial banks had calculated that, collectively, some 1,200 of their borrowers might qualify for the assistance proposed by the plan.

And Michael Halkitis, minister of state for finance, had previously told the House of Assembly that around 5,000 residential mortgages were in the non-performing category, placing the qualification percentage squarely in the 20-25 per cent range.

And Tribune Business also reported that the CBA had calculated that the Mortgage Relief Plan will cover just $165 million in past due principal and accrued interest owing, a sum equivalent to just 36.7 per cent of all non-performing home loans.

It had also told this newspaper in February 2012 that some $450 million worth of mortgages were non-performing, meaning they were 90 days or more past due.

The $165 million covered under the Government’s Mortgage Relief Plan is equivalent to just 36.7 per cent of that $450 million figure, and while any help for distressed borrowers and the economy is welcome, the scheme as is will not likely make a huge dent in the problem.

Indeed, the Central Bank of the Bahamas’ June monthly economic update placed the total worth of mortgages in arrears - those 31-90 days past due, as well as non-performing - was just over $660 million.

As a percentage of that sum, the $165 million covered by the Mortgage Relief Plan pales into relative insignificance, at 25 per cent - one-quarter - of the total.

Such themes were again picked up yesterday by Dr Sands, the FNM candidate for Elizabeth in the last general election.

While acknowledging that the mortgage relief plan might help some struggling homeowners, he argued that it would have little to no impact on the overall Bahamian economy, especially the construction and real estate industries.

“It does not offer any significant relief to the vast majority of individuals reeling from mortgage debt,” Dr Sands told Tribune Business.

“If you look at the qualifying criteria, the individuals that will benefit from this plan have been benefiting from restructuring already.”

The former Mortgage Corporation chairman agreed with Tribune Business’s data, suggesting that “less than one-third” of the $450 million delinquent mortgage aggregate would benefit.

Referring to the $660 million worth of past due mortgages cited in the Central Bank’s June economic report, Dr Sands told Tribune Business: “A $10 million infusion into a $660 million abyss is going to do precious little.

“It will help a few people get back on their feet, but will it have a dramatic effect on the economy? I don’t think so.

“For the average Bahamian homeowner and those suffering the most, this is going to be of not benefit at all. If you look at the Mortgage Corporation portfolio, which I am intimately familiar with, there are not many people in that 1,000 or so [delinquent] customers that are going to benefit from this plan. Most of them have been delinquent for more than 500 days; 999 days, many of them.

“If you say you have to be in good standing from June 2008, that’s going to eliminate the overriding majority of those individuals.”

The Government’s mortgage relief plan appears to have been watered down to the point where it largely resembles what the commercial banks were doing in any event, when it came to working with delinquent customers and restructuring their loans.

It also bears no resemblance to the plan the PLP was promoting prior during the election campaign. For example, gone are the pledges to get the banks to agree to write-off 100 per cent of the interest and fees.

Other promises that have also disappeared are getting the banks to reduce the interest rate on delinquent loans to Prime plus 1 per cent, and the Government guaranteeing the interest payments for delinquent borrowers for five years through to 2017.

Dr Sands yesterday suggested the governing party had performed a “bait and switch” in relation to its campaign promises, overpromising to gain votes and then delivering something totally unrecognisable from the campaign trail.

As a result, he questioned “who this plan is really intended for”, and whether it was designed to assist certain market segments or industries.

Suggesting that the plan spoke to a “general restructuring with a gift from the Government” thrown in, Dr Sands also queried how those to qualify for the assistance would be determined.

“The need to ensure state funds are being handed out fairly, appropriately and in an unbiased fashion is going to be critical,” Dr Sands told Tribune Business.