The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Scotiabank (Bahamas) yesterday confirmed that none of its 59 customers who applied for the Government’s Mortgage Relief Plan had actually qualified, with more than 50 per cent lacking the necessary incomes to sustain restructured loans.

Kevin Teslyk, its managing director, said that due to the aggressive, early approach the Bahamian commercial banking sector took to working with distressed borrowers, and the mortgage industry being “three years into the crisis”, there were very few restructuring candidates remaining.

Delinquent borrowers, though, are not being put out of their homes overnight. Mr Teslyk disclosed that due to the depressed real estate market and overall economy, some 60 per cent of Scotiabank (Bahamas) non-accrual mortgage loans have been in that state for more than three years.

Noting that the commercial banking industry was set to work with the Government to achieve “a higher success rate” in the New Year, Mr Teslyk said: “The Mortgage Relief Plan has been slow to take up.

“The project was well planned and well developed. What we’re finding, particularly as we work through the opportunities with all our customers - and this is across the banking sector - is that incomes and cash flows are making it very difficult to facilitate any further restructuring.

“Part of the slow take up is that we’re three years into this crisis, and the banks have been as aggressive as they could have been, working with clients early on. There is nothing left out there; no opportunities to restructure.”

Mr Teslyk said the only new mortgage restructuring possibilities were home owners who had run into difficulties in recent times.

In Scotiabank (Bahamas) case, when it came to the Mortgage Relief Plan, Mr Teslyk said: “We received 59 applications as an institution, They were all in the various stages of processing, documentation. As we got through the process, we had none that actually qualified, unfortunately.”

Explaining the reasons for this, he added: “Over 50 per cent of this is income, lack of cash flow for them to cover, to sustain it [remaining current with a restructured loan] on an ongoing basis.”

Another one-third of borrowers failed to qualify for the Mortgage Relief Plan because they were less than 90 days in arrears on past due payments, and outside the timeline parameters, while others were in arrears prior to the mid-2008 financial crisis start.

Mr Teslyk acknowledged that Scotiabank (Bahamas) had predicted a low Mortgage Relief Plan take-up at the start, due to the fact it had already assisted most borrowers who were capable of servicing restructured home loans.

He added: “We’ve been asked formally by the Ministry of Finance to look at the programme again, and look at ways we can collectively enhance it.

“The objective is that the financial commitment the Government has made to Clearing Banks Association customers, they’d like to see that financial commitment used and set aside.

“In the New Year we’ll be working with the Government to enhance and alter the programme, so we can see the success rate increase.”

The Clearing Banks Association (CBA) had initially estimated that 800-1,000 non-performing mortgage borrowers would benefit from the Government’s Mortgage Relief Plan, but acknowledged that another 3,000 would not.

The Government’s Mortgage Relief Plan contribution was capped at $10 million, or $7,500 per borrower, and the strict qualifying criteria will also act as a barrier to high take-up.

When it came to the Homeowners Protection Bill, the second strand of the Government’s dual ‘mortgage market relief’ strategy, Mr Teslyk said that despite a version of the Bill being tabled in the House of Assembly, the commercial banking sector still had expectations of further input into it.

Noting that the Government was seeking feedback from other sectors, such as the Bahamas Bar Association, Mr Teslyk said the intent behind the Homeowners Protection Bill was to ensure delinquent mortgage holders were “not being prematurely forced to leave their homes”.

Explaining that similar legislation existed in the Uk, Ireland and Canada, he disclosed that when it came to Scotiabank (Bahamas) mortgage book, “60 per cent of the properties have been non-accrual for over three years”.

This illustrates the difficulty Bahamian banks are having in offloading distressed properties in today’s depressed economy, with the supply of real estate exceeding buyers - many of whom are finding it difficult to obtain mortgage financing in any case.

Mr Teslyk said the situation for such borrowers was unlikely to improve unless there was “a fundamental turnaround of the economy”.

As a result, Scotiabank (Bahamas) had engaged in “very frank and open discussions” with these clients, sometimes in collaboration with them and other times not, about the need for them to change their lifestyle - downsizing to a smaller property, selling vehicles or exiting the ownership market and renting instead.

Acknowledging “the small market” for real estate in the Bahamas, Mr Teslyk said the situation had “brought a new sense of realism” to many distressed borrowers.

Aided by realtor appraisals, which showed the market value of their properties was less than it was three years ago, Mr Teslyk said some distressed borrowers were making “conscious decisions” to exit, thus reducing debt and recovering what equity they can.

Scotiabank (Bahamas) , he added, did not want to become a ‘landlord’ where it leased distressed properties back to the owners until the situation improved.

This would make the bank a real estate holding company, causing all sorts of balance sheet and solvency ratio/capital complications.

Mr Teslyk added that Scotiabank (Bahamas), and the wider commercial banking industry, had “two fundamental areas of concern” when it came to the Homeowners Protection Bill.

These were the demands that 4,000 distressed mortgages could create on the already overburdened Bahamian court system, and the speed at which applications were processed, plus “making sure there’s language in there that’s clear enough” to inform all parties of their rights.

Apart from “ensuring there was expediency in hearing the cases”, Mr Teslyk said the clearing banks also wanted to financial expertise to be present alongside its legal and judicial counterparts, as the Bill was “bringing credit decisions into the legal purview of the courts”.

He also confirmed that the Bahamian commercial banks had called for a separate Tribunal to be established to hear mortgage cases, but that this was rejected by the Government.