The Tribune

• Homeowner Protection law to undergo review

• Banker: ‘Legislation should not block commerce’

• ‘Cart before horse’ without bankruptcy upgrade

By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

SAFEGUARDS to protect delinquent mortgage borrowers from losing their homes are poised for review with a senior banker warning they were “carrying us down the path to hell” despite the noble intent.

Gowon Bowe, the current Clearing Banks Association (CBA) chairman, revealed to Tribune Business that potential reforms to the Homeowners Protection Act are set to be assessed by a working group featuring representatives from the industry plus Ministry of Finance and Attorney General’s Office officials.

He explained that “lack of clarity”, and practical difficulties with implementing the Act, had merely increased the risk associated with mortgage lending by making it more costly, time-consuming and uncertain for banks when it came to repossessing or selling properties pledged as collateral by delinquent borrowers.

The effect, the Fidelity Bank (Bahamas) chief told this newspaper, can be seen in the $133.7m contraction in the Bahamian banking industry’s total outstanding mortgage portfolio in the four years to end-December 2023. The end result is heightened reluctance and unwillingness to extend mortgages, which is threatening Bahamian home ownership dreams and housing market activity.

“There are quite a number of issues, and not going into the weeds necessarily, but there are practical implications in the Homeowners Protection Act,” Mr Bowe said, while asserting: “Legislation should not prohibit commerce.”

As an example, he pointed to the section in the legislation that imposes restrictions on the family members of bank employees from buying or making offers on distressed properties where the same institution is seeking to exercise its power-of-sale.

Arguing that “family members” needs to be better defined, given the extensive inter-locking family relationships in The Bahamas where “everybody is my cousin”, Mr Bowe also called for greater clarity over what is deemed to “a reasonable effort” by a deadbeat borrower to at least pay some of their monthly obligations.

The Homeowners Protection Act, which was passed into law in early 2017 during the final months of the Christie administration, has long generated concerns over so-called “unintended consequences” that have made already-skittish lenders even more reluctant to advance mortgage credit with the result that residential housing market activity is curtailed.

Explaining the origins of the latest reform push, Mr Bowe, who is also Fidelity Bank (Bahamas) chief executive, told Tribune Business: “The clearing banks years ago, when the Homeowners Protection Act was first enacted, and before it was enacted, had raised various challenges with the legislation.

“There was some dialogue between the clearing banks and the Ministry of Finance, and there were some matters agreed with the Ministry of Finance, but no amendments were made to the law. There were points discussed in 2016, and some were agreed and some not agreed. Because some were not agreed none got amended before or after the legislation was enacted.”

Now, Mr Pinder has “taken it on board”. Mr Bowe added: “The Attorney General has agreed to establish a working group that does three things. Those points that have been agreed, the drafters amend them. For those points requiring policymaker decisions, for him to carry that back to Cabinet. Third, once the policymakers have taken a decision on a point, to write back so it’s put to bed....

“The result of the lack of clarity and lack of practical implementation ability is it created such a delay on the recovery process through power of sale, even if the financial institution wanted to lend a mortgage, they not only have to think about credit risk but also legislative risk. Legislation should not prohibit commerce.”

The Act inserts the courts into the mortgage contract, especially when it comes to the foreclosure and ‘power of sale’ process, leaving its provisions open to judicial interpretation. Instead, Mr Bowe argued that the terms of the mortgage contract should be left alone for both parties to perform their respective obligations.

“While the legislation is honourable, it may have been passed with good intent, but it is carrying us down the path to hell,” he told Tribune Business. Sir Franklyn Wilson and his predecessors as Clearing Banks Association chairman have also voiced similar concerns.

Outlining the impact in its just-released 2023 annual report, Fidelity Bank (Bahamas) wrote: “The significant inventory of slow-moving distressed properties, and the geographical location of The Bahamas on the hurricane belt and the consequent cost of premiums for insuring properties held as collateral for such and similar catastrophes represent certain of the structural challenges confronting mortgage lending in The Bahamas.

“Additionally, legislation in The Bahamas that was enacted with the honourable intention of protecting home ownership has proven to be rife with practical implementation challenges and the unintended consequences of significantly delaying the normal recovery processes involving sale of collateral under the powers of sale granted in the mortgage deeds.

“These structural and legislative challenges, as exacerbated by the economic malaise caused by the global pandemic, has had the effect of significant contraction in mortgage loans reported by the commercial banking sector since December 31, 2019, and the consequent enhanced caution in underwriting by the commercial banking sector is not expected to see any reversal for the foreseeable future.”

Mr Bowe, meanwhile, told Tribune Business that The Bahamas “kind of put the cart before the horse” by enacting the Homeowners Protection Act without it being accompanied by a modern bankruptcy law framework. He pointed to Canada as an example of where there were protections for a delinquent borrower’s home, under certain conditions, but creditors could make claims on their other assets.

“The Government had honourable intent,” he reiterated, “but the overall and holistic approach requires modern bankruptcy legislation accompanied by homeowners protection, not homeowners protection unaccompanied by modern bankruptcy legislation. It’s putting the cart before the horse.

“Part of legislating a framework for bankrupting individuals is to allow them to retain their home. Part of that is homeowner protection. You don’t have homeowner protection and then figure out how to recover outside that. It’s putting banks in a very tenuous situation. You may be willing to take credit risk, but am I going to take legislative risk?”

The Christie administration’s rationale for developing the Homeowners Protection Act was to make delinquent Bahamian mortgage borrowers more secure in their homes, with all the attendant social and economic benefits that will bring if they can restructure their loans.

However, it threatens to increase the costs, time and difficulty/uncertainty 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 banks may both hike interest rates and refuse to grant new Bahamian loan applicants access to credit.

Besides impeding Bahamian dreams of home ownership, this could further depress the housing market and negatively impact industries that rely heavily upon it, especially the construction, real estate and legal sectors.