The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The FNM’s deputy leader yesterday warned the Government about the potential ‘unintended consequences’ of its Homeowners Protection Bill, expressing concern that it could further slow mortgage lending and the wider economy.

K P Turnquest told Tribune Business his “big concern” lay in the fact that the Bill threatened to “intervene” in the contractual relationship between a borrower and their lender after both parties had committed to it.

He warned that court intervention, as set out by previous versions of the Bill, would make it much harder for commercial banks and other lenders to secure properties and other loan security.

As a result, Mr Turnquest said they would become more risk averse, and either pull back from mortgage lending or increase the interest payments borrowers must make, with both outcomes likely to slow down the housing market and industries that depend on it.

“The big concern I’ve always had is that they’re talking about introducing regulations, or intervening in a contract between the bank and its borrower,” the FNM’s deputy leader told Tribune Business. “That’s not great. It’s going to make credit more difficult to obtain.”

Asked whether the Bill would make commercial banks more reluctant to engage in mortgage lending, Mr Turnquest responded: “Intuitively, I would say that it will.

“As banks continue to make sure they’re protected, to the extent they’re now talking about the court having the ability to intervene after the fact, it’s adding another layer of risk that the bank will want to be compensated for.”

Mr Turnquest said this would likely result in Bahamas-based lenders increasing the interest rates on mortgage loans, or further tightening an already-stringent lending criteria.

Either way, he expressed concern that more Bahamians would be denied the opportunity to enter the housing market, and own ‘their piece of the rock’, as a result of the consequences flowing from the proposed Bill.

“I think we have to see the details of the Bill, but certainly that would be my concern,” Mr Turnquest told Tribune Business.

“It will obviously result in a slowdown in the economy overall, because if borrowers are not able to meet the requirements - if those requirements are raised - there’ll be no mortgage loan.

“And if there’s additional cost involved because of the risk, it will be more expensive to afford.”

With around $500-$600 million worth or mortgages still in default following the 2008-2009 recession, Bahamian mortgage lenders need little further incentive to pull back on lending.

Should they do so, the impact would be felt throughout an economy where credit is the lifeblood of economic activity. The ramifications would be especially felt in the construction and real estate industries, and all sectors that depend on the housing market.

Mr Turnquest spoke out after Prime Minister Perry Christie told the Bahamas Business Outlook conference on Monday that the Homeowners Protection Bill was back on the Government’s agenda, and it was seeking to pass it through Parliament before the upcoming general election.

The Bill, which was first brought to the House early in the Christie administration’s term in office, but never made it into law, is likely to have undergone some subsequent revisions.

However, in its early incarnation, many in the banking industry saw it as well-intentioned legislation that would provoke numerous unintended consequences.

While the Bill is designed to make troubled Bahamian borrowers more secure in their homes, the fear is it will make it far more difficult, costly and time consuming for banks to secure - and take possession of - distressed assets.

And inserting the already-clogged court system into the contract between lender and borrower will provide a further disincentive for banks to lend, or entice them to raise interest rates to compensate for the increased risk.

The end result, banking industry sources have predicted, will be a further pull-back in commercial bank mortgage lending, exacerbating the current Bahamian housing crisis.

The Government, though, sees the Bill as part of an improved consumer protection package, alongside its Mortgage Relief Plan and the proposed Credit Bureau Bill.

It is also under pressure to act after Marco City MP, Greg Moss, introduced his own Private Members’ Bill on the same subject.

Mr Turnquest, meanwhile, questioned whether the 350 borrowers assisted to-date justified the Government’s outlay of $20 million worth of taxpayer monies, over a four-year period, on the Mortgage Relief Plan.