The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government’s $10 million contribution to the Mortgage Relief Plan will only go to bank profits and have “zero” impact in stimulating new lending, a top accountant saying Bahamians’ debt burdens will be a “drain on the economy for many years”.

Raymond Winder, managing partner at Deloitte & Touche (Bahamas), while praising the Government for working with the banks to assist as many delinquent homeowners as they could, said the sheer scale of household indebtedness would prevent many from accessing the credit markets again for “many years”.

For mortgage borrowers who did not qualify for the relief programme, Mr Winder said it would likely be better for them to sell their existing homes and “downsize” into smaller, cheaper properties that their reduced incomes could afford.

To facilitate this process, he suggested that the Government provide incentives in the form of Stamp Tax and other fee exemptions for homeowners forced to sell, so that they were not “penalised” and were eventually able to re-enter the market.

And, echoing Clearing Banks Association (CBA) head Nathaniel Beneby, the leading accountant agreed that consumer borrowing from unregulated lenders was a major issue, and establishing a “limit” on salary deductions may be necessary.

With more than 4,000 mortgages, worth a collective $460 million, non-performing as at end-July 2012, Mr Winder agreed that the joint government-CBA relief plan was “a good thing”, even if it assisted just 20-25 per cent of those in trouble.

He added, though, that the plan would not act as a stimulus to new banking lending or alleviate the worst of the mortgage ‘crisis’.

With excess liquidity in the commercial banking systems standing at $1.0145 billion at end-June 2012, Mr Winder said the banks were flush with cash available for lending opportunities, and did not need any more.

Pointing out that the maximum $7,500 per borrower payment by the Government, under the plan, would go straight to bank profits, Mr Winder told Tribune Business: “Those payments will go directly to the banks.

“Very little of it will have a resultant impact on the economy. The reason is that the banks had a significant amount of unused cards in their programme before this. It’s not like they need additional funding in the marketplace.

“This will generally go to the bottom line of the banks, and will do very little if anything for the overall economy.”

Surplus liquidity (assets available for client lending) in the Bahamian commercial banking system have been building up for several years, largely due to the absence of qualified new borrowers and confidence being hit by heightened delinquency levels.

Mr Winder re-emphasised of the Mortgage Relief Plan: “I think it’ll have zero or, at best, limited impact on new lending and credit simply because the banks already have sufficient funds that have been underused.

“The additional amount the Government’s willing to pay will not result in them lending more money to individual customers and those who currently qualify to get that lending.

“I don’t see any stimulus at all, because the money is not an issue. All that money will go to the profits of the banks.”

The Mortgage Relief Plan’s qualifying criteria means only several hundred Bahamian households will likely be eligible to receive the assistance.

The main determinant is the so-called ‘Gap’, the amount of total mortgage debt outstanding inclusive of accrued interest, minus what the borrower can afford to service now on their reduced incomes.

All eligible borrowers whose gap does not exceed $22,500 will qualify for participation in the plan. Of that $22,500, the Government will kick in a maximum of $7,500, or one-third.

For those whose ‘Gap’ exceeded that number, and stood little prospect of closing it, Mr Winder recommended that the Government do all it could to assist the market ‘re-entry’ of those who might be forced to sell their homes and downsize - at least temporarily.

“For individuals that have a significant difference between the mortgage rate they can pay now versus what the mortgage calls for, they are going to have significant difficulties ever closing that gap with their current salaries, and expenses increasing so much,” Mr Winder said.

“In some cases, a number of those individuals will do better if allowed to sell those homes and downsize into more modest accommodation that allows them to meet a new mortgage.

“For individuals that fall into that category, the Government must seek to have reductions in Stamp Tax and the fees Government charges for mortgages,” he told Tribune Business.

“The Government should make a way for those individuals never able to close that gap to come back into the market, and not be penalised if they were unable to meet their previous obligations. That cannot be held against them. The Government should offer benefits and incentives for persons to do that.”

Recognising that its fiscal predicament limited the amount of assistance the Government could give to the Mortgage Relief Plan, Mr Winder said the Bahamas needed to “look at more innovative ways” to bring Bahamians into home ownership.

And he backed the CBA’s view that the huge percentage of income take up by salary deductions, required to service consumer loan payments, were either getting Bahamians into too much debt or preventing them qualifying for mortgages.

“We cannot allow individuals to use up such a huge percentage [through salary deductions]; there needs tom be a limit, so they do not eat up everything,” Mr Winder said.

“It’s not the banks creating the challenge with these salary deductions. There are countless companies outside the banking system that are creating havoc in the system by being able to garner salary deductions.”

Such companies include the likes of car dealerships, furniture and appliance companies, and Mr Winder added: “There is no limit on these places and how far they can go in deducting a percentage of a person’s salary.

“The banks for the most part have been very responsible in ensuring obligations do not exceed a certain percentage of income.”

Although the $460 million worth of delinquent loans currently account for 15.88 per cent of all outstanding mortgages, meaning that close to $1 out of every $6 leant for home purchases in the Bahamas is non-performing, Mr Winder said the situation had “stabilised” - meaning there were likely to be no further major spikes.

But he quickly told Tribune Business: “Due to the heavy indebtedness of individuals, either through mortgages or salary deductions for other obligations, that’s going to be a drain on the economy for many years.

“It’s going to take a significant amount of years for those obligations to be paid down to allow individuals to go back into the market for goods and other stimulative activities.

“As long as that level of obligation hangs on those individuals, it’ll be very difficult for them to go back into the marketplace and provide that sense of stimulus we need. In that sense, it is a crisis.”