The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE unintended effects of the Government’s Homeowners Protection Bill could be “disastrous for the entire economy”, the FNM’s deputy leader warned yesterday, cutting off mortgage credit and undermining all industries dependent on the housing market.

K P Turnquest told Tribune Business that the proposed legislation threatened to make it more difficult for commercial banks, and other mortgage lenders, to collect on the security/collateral for distressed loans.

The Christie administration’s Bill is designed to make Bahamian mortgage holders more secure in their homes in the event of default, something it wants to achieve through inserting the courts into the foreclosure and ‘power of sale’ process.

Acknowledging that the proposed legislation was “well-intentioned”, Mr Turnquest said it would have the effect of increasing the costs, time and difficulty incurred by banks in repossessing mortgage collateral - usually the homes and businesses subject to the original loan.

With a higher risk now associated with mortgage lending as a result, the FNM deputy leader predicted that the banks would react to the Bill’s passage by both hiking interest rates and refusing to grant Bahamian loan applicants access to credit.

This, in turn, would depress an already-struggling housing market, and negatively impact industries that relied heavily upon it, especially the construction, real estate and legal sectors.

“If you look at how the banks reacted when the Government increased their license fees to force them to retain more of their income locally, rather than achieving that result, what we saw was higher fees and charges from the banks,” Mr Turnquest told Tribune Business.

“They reacted like any private sector entity would, and I expect them to do similar to protect their corporate interests this time.

“I’d expect them to tighten their lending policies, and be more discerning in who they granted credit to, and that would be disastrous for the entire economy,” the east Grand Bahama MP continued.

“While the intentions are good, and we want more opportunity for borrowers to stay in their homes and re-organise their affairs, we have to be careful that the fix does not create more harm.”

Bahamas-based commercial banks and other mortgage lenders will likely require little incentive to further withdraw from the mortgage market, given the persistently high level of ‘bad’ loans (around $600 million) that they have had to endure since the 2008-2009 recession.

That number reduced by $176.2 million or 25.3 per cent in 2016, largely due to the sale of a non-performing portfolio to Sir Franklyn Wilson’s Gateway Financial, but institutions such as Fidelity Bank (Bahamas) have almost totally pulled back from mortgage lending.

Prime Minister Perry Christie recently indicated to the Bahamas Business Outlook conference that the Government was attempting to take the Homeowners Protection Bill to Parliament before the upcoming general election.

The Bill, which the Christie administration is likely to view as a populist measure that will find favour with the voters, requires lenders to give delinquent borrowers 30 days’ notice before either invoking their ‘power of sale’ under the mortgage or seeking a court-approved foreclosure.

In both cases, borrowers can apply to the Supreme Court for relief. On the foreclosure process, the court can either adjourn, stay or suspend the matter if it believes the borrower will be able to pay principal and accrued interest within six months.

As for the ‘power of sale’, the latest version of the Bill allows the court to postpone this for “a reasonable period where a sum equal to at least one half of the principal, and accrued interest, has been paid at a specified time”.

Mr Turnquest told Tribune Business: “While well-intentioned, we have to consider what the effect is going to be on the industry and ability of borrowers to access financing.

“As we make it more difficult for financial institutions, they pass that cost on and increase the risk. We don’t want to restrict credit; we want to facilitate credit. We want both parties, lender and borrower, to be responsible.”

Mr Turnquest said that rather than have the courts intervene in, and interfere with, already-agreed mortgage contracts, the FNM was proposing to introduce debtor protection laws if elected.

These, much like US-style Chapter 11 bankruptcy protection, would give borrowers “the opportunity under court supervision to re-organise their affairs and work out debt situations when they get into a financial hole”.

Mr Turnquest added that the Opposition party would also look to reduce the costs associated with refinancing and debt consolidation, given that these also acted as obstacles to financial relief for Bahamians.

Meanwhile, the February 10, 2017, draft of the Bill, which has been seen by Tribune Business, also goes beyond the mortgage market.

For it gives the responsible Cabinet minister the ability to curtail consumer lending via salary deductions. They, via the Bill, can set a ‘cap’ or limit on the percentage of a person’s income that can go in deductions to service loans.

The Minister also has total freedom to draw up the regulations accompanying the Bill as he sees fit, something that Mr Turnquest said ran counter to current global trends.

He told Tribune Business that the long-awaited Credit Bureau, for which legislation is also pending, would make “the requirement for caps irrelevant” when it came to salary deductions.

Mr Turnquest said this was so because, through the Credit Bureau, banks would have access to complete information on all borrowers, and be able to assess their debt service ratios and other limitations.

“I think we’re moving into an age where we need less of Ministerial control, and need to free the economy to do what it does best,” he added.

“If allowed to operate freely, economies tend to work efficiently, and Government instead needs to focus on its role as regulator.”