The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Arawak Homes’ chairman yesterday conceded that any Government action to address the Bahamas’ $675 million ‘bad’ mortgage crisis would be “a twin-edged sword”, as the threat of creating ‘moral hazard’ among existing borrowers was “very real”.

Franklyn Wilson, who was previously asked by Prime Minister Perry Christie to lead efforts to revive the failed Mortgage Relief Plan, said all stakeholders should be “encouraged” by the commitment from Scotiabank’s Caribbean head to finding a solution that could work for all.

Bruce Bowen told Tribune Business yesterday that he was “optimistic” the Bahamas would develop a workable solution to its mortgage/housing woes, and that it now depended on all parties - including the Government - selecting a preferred model and executing upon it.

But Mr Wilson, acknowledging the ‘clogged’ housing market that has resulted, also warned that well-meaning public policy initiatives sometimes “create more problems than they solve”.

He said such an outcome could result if the “wrong” solution for the mortgage crisis was selected - especially if it gave borrowers who ‘can pay but don’t pay’ an escape route to avoid their obligations.

The Arawak Homes chief added that, in a such a scenario, responsible mortgage borrowers would be disadvantaged, while Bahamians who “don’t play by the rules” benefit.

Bahamas-based commercial bankers have voiced privately to Tribune Business for years their concerns that the Government’s much-trumpeted Mortgage Relief Plan would create just such an outcome.

This represents the first time that one of the Christie administration’s key private sector advisers has expressed similar misgivings, although Mr Wilson said Mr Bowen’s interview with this newspaper showed how it was possible to build the necessary “consensus”.

“Clearly, the overhang of a large number of homes in foreclosure for any length of time puts a burden on the market,” the Arawak Homes chairman told Tribune Business.

“Moody’s and other reports spoke to the fact it’s retarding new home construction, and that has an impact for furniture people and those that benefit from new housing construction.

“Look at the statistics from the Ministry of Works. There are fewer and fewer homes being built because of this overhang.”

Dealing with the Bahamas’ extraordinarily high level of non-performing mortgages was one of the Christie administration’s major promises on the 2012 general election campaign trail.

However, its original Mortgage Relief plan, billed as aiding 1,000 troubled borrowers, was a flop. Just four were assisted, amid much acrimony and political finger-pointing, with the Government blaming the banks for the failure.

Yet there is a sound social and economic rationale for attempting to resolve the’ mortgage crisis, or at least easing it.

Almost $675 million worth of Bahamian home loans were past due at end-November 2015, according to the Central Bank of the Bahamas, weighing down both bank balance sheets and depressing their profits, via reduced interest income and higher loan loss provisions.

This, in turn, has resulted in a construction and real estate slowdown, and several thousand Bahamian families facing the loss of their homes, as banks continue to public 20-30 page brochures featuring distressed properties for which there are no buyers.

But, while agreeing that a solution was “very important”, Mr Wilson told Tribune Business: “It’s also important that in any initiative to help, if you will, that out, you don’t want to give anyone the sense they don’t have to pay their just obligations.

“Bankers call it ‘moral hazard’. That’s very real. With public policy, people so often scream for action, and sometimes you get it wrong and create more problems than you solve.

“This is a case where, at the end of the day, you want something that helps positively, but you don’t want to do two things,” he added.

“One, you don’t want to give people a vehicle to run away from their obligations, and two, people who have met their repayments and played by the rules, and done what they’re supposed to do, should not be made to suffer.

“These are the things that policymakers need to be very careful about.”

Bahamian commercial bankers have long stressed that any so-called ‘mortgage relief’ initiative needs to focus on borrowers unable to meet their obligations through no fault of their own, such as job losses or medical emergencies.

They have repeatedly expressed concern that a ‘catch all’ relief plan, in which borrowers who have the ability to pay but simply do not, would simply exacerbate the increasing tendency among many Bahamians not to pay their bills.

Mr Wilson agreed, telling Tribune Business of any relief initiative: “The fact of the matter is that it’s a twin-edged sword. You want to help, but you have to get public policy right.”

He pointed to the ‘mixed signals’ that would be sent if borrowers, who had done everything by the book and were current with their loan repayments, saw a neighbour whose behaviour had been the exact opposite, walk away from his obligations scot free.

Mr Wilson, though, said Arawak Homes “cannot immune itself from these economic forces” that have frozen the housing market.

He added that its new construction activities had decreased “a lot” over the past three years.

He also told Tribune Business that his work in assisting the Government with its Mortgage Relief Plan was now complete, implying that the administration had taken charge due to its desire to consult as widely as possible with all stakeholders.