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Plp's $250m Mortgage Plan Blasted

By NEIL HARTNELL

Tribune Business Editor

A LEADING Wall Street credit rating agency has blasted the newly-elected Progressive Liberal Party (PLP) government's proposed mortgage relief plan for "undermining" efforts to rein in the $4.356 billion national debt, warning that the scheme will likely cost Bahamian taxpayers $250 million to implement.

In a commentary likely to shock many in the governing party, Moody's described the plan - a key plank of the PLP's general election campaign - as demonstrating "a lack of commitment" on the Christie administration's part to tackle annual fiscal deficits running at over 4 per cent of gross domestic product (GDP).

Moody's described the proposed mortgage relief plan as "a credit negative", implying that its implementation could lead to it further cutting (downgrading) this nation's sovereign credit rating, something that could scare away foreign investors and increase the Bahamas' borrowing/debt servicing costs in the international capital markets.

Edward Al-Hussainy, Moody's assistant vice-president, in his note to investors on the general election outcome's implications, also warned that the PLP's mortgage plans created "moral hazard" that could increase Bahamian mortgage delinquencies, and would cost the Government a sum equivalent to 3.1 per cent of GDP spread over five years.

Mr Al-Hussainy, in his investment note obtained by Tribune Business, said of the new government's proposal: "We believe this demonstrates the new government's lack of commitment to the fiscal consolidation measures necessary to stabilise the national debt, and is credit negative.

"When enacted, this legislation will constitute a substantial contingent fiscal liability to the Government, and will negatively affect the sovereign credit. We estimate the contingent cost to the Government will be up to $250 million over five years, or 3.1 per cent of 2011's GDP.

"In addition, the plan introduces an element of moral hazard into the housing finance market that may actually increase delinquencies from their current level of 20 per cent of mortgage stock, or over 9 per cent of total bank lending."

Bahamian commercial banks, which have been waiting in trepidation to hear from the Government on how it proposes to implement its mortgage relief plan, last night told Tribune Business that the "moral hazard" element had already begun to kick-in.

While no bankers want to speak 'on the record' for fear of upsetting the new government, one senior executive, speaking on condition of anonymity, told this newspaper: "Banks are already seeing a deterioration in arrears for mortgages under 90 days past due.

"Those under 90 days past due have increased since the PLP announced its scheme. We were alarmed at the trends. The asset recovery teams were saying there was a sizeable jump in mortgage arrears between 31-90 days."

Moody's sentiments are likely to place Prime Minister Perry Christie and his government between the proverbial 'rock and a hard place', and at least give them pause for thought and pull them up sharply on the plan.

One the one hand, Mr Christie and the PLP will want to deliver on a key election promise that may well have induced a significant number of Bahamians to vote for them, and will not want to disappoint them for fear of a voter backlash.

Indeed, implementing the mortgage relief plan is included among the achievements the PLP has promised to fulfill during its first 100 days in government. And, as the bankers have indicated, there are already signs that more Bahamians are defaulting on their mortgage payments in the expectation that the Government will be there to bail them out.

Yet, on the other hand, the Government cannot risk a possible further downgrade to its sovereign credit rating. Not only would this increase borrowing/debt servicing costs on existing and future foreign currency debt servicing issues, such a development would also send a negative signals to international capital markets and potential foreign investors.

With economic growth and recovery a top priority, the last thing the Bahamas needs to do is send the wrong message that deters foreign direct investment (FDI).

Yet Moody's statement has already dealt a significant blow to the new government's hopes of sending out a message of 'fiscal prudence'.

Mr Al-Hussainy, in his note, said: "The Bahamas is experiencing a weak recovery from the global financial crisis, remains vulnerable to external shocks, and has limited fiscal room to maneuver.

"Our negative outlook for the sovereign reflects a growing financial deficit, currently at 4.7 per cent of GDP, and high levels of government debt that have ballooned to 53 per cent of GDP from 31 per cent at the time of the last national election in 2007.

"Stimulus spending has supported a return to positive, albeit tepid, growth of around 2.5 per cent this year. But unemployment remains above 15 per cent."

And, dealing a potentially serious blow to the Government's mortgage relief plan, Mr Al-Hussainy added: "Also, there's been little progress in reforming the tax system and diversifying sources of tax revenue, in particular through the introduction of a value-added tax (VAT).

'"Near-term fiscal consolidation to control public spending and build up buffers is critical in this economic environment, and the mortgage plan undermines this."

The Moody's investment note said the PLP's general election campaign had advocated "significant new social spending", and described the mortgage relief plan as Mr Christie's "central campaign pledge". The rating agency said the plan included five years' of government guarantees for delinquent borrowers, together with write-offs of accrued interest and fees owing to the banks, and interest rate caps on mortgage loans.

Mr Al-Hussainy produced data showing that there were some $3.2 billion worth of outstanding mortgage loans in the Bahamian banking system, a sum equivalent to 39.6 per cent of GDP. Residential mortgages accounted for $3 billion, a sum equivalent to 37.3 per cent of GDP, with banks holding $2.8 billion - equivalent to 34.9 per cent of GDP.

The $700 million worth of mortgages in arrears is equivalent to 8 per cent of the Bahamas' $8.2 billion GDP, Mr Al-Hussainy noted. He calculated the $250 million burden from the proposed relief plan using an interest rate of 8.2 per cent, and 20 per cent of residential mortgages being in arrears.

The Moody's data also showed how many Bahamians were mortgaged to the hilt on consumer loans. With total bank lending standing at $7.1 billion or 87 per cent of Bahamian GDP, consumer credit totalled $5.2 billion or 63.6 per cent of GDP.

Comments

C_MonMan 7 years, 6 months ago

Welcome to the real world, where loose lips sink ships, big talk don't hurt your mouth and ill-conceived actions and words have consequences. Duplicity and talking from two sides of your mouth may work during a campaign, but it does not solve problems and it is only sustainable when one is an arm-chair general. In the real world problems do not solve themselves, they require one to make tough and very often unpopular decisions. Good luck, we will need it.

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TalRussell 7 years, 6 months ago

Come on Tribune. The PLP having been in office a mere week and already they're already being blamed for the previous five years of Humbert's monetary blunders? I guess you know what I and other readers suspect of your speaking on condition of anonymity sources. I'd tell you but such language should not be used here.

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concernedcitizen 7 years, 6 months ago

peep out your window small russell ,i think HAI is hiding in the bushes going hee hee hee hee .....hows that pavlos dog syndrome affecting your sleeping habits ,do you hear Ingrahams name in your sleep and wake up in a cold sweat ,,my goodness it too easy lol MOODYS MOODYS MY GOOD MAN /WOMEN THE TRIBUNE JUST REPORTED IT ,,hee hee hee hee

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Arob 7 years, 6 months ago

The PLP campaigned on this issue. This was promised to the people. One would think that the finance team reviewed this idea before it was proposed to the people. It appears that the people were told what they wanted to hear. Very unfair!

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notsogullible 7 years, 6 months ago

They don't have to review anything before bringing it to the people. TAL's natives and kind just soak up everything PLP's tell them. EVERYTHING is the gospel truth. There's no thinking for themselves.

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dacy 7 years, 6 months ago

LOL THEY GET SWING...AGAIN!

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Rontom 7 years, 6 months ago

Hey, stupid, Its was part of the PLP platform. Dont you get it, they dont understand economics; they dont get that in making fiscally irresponsible decisions no matter how lofty is sounds, no matter their intentions, it will cause severe damage to our country's economy. The good news is the rude awakening of prudency and the wisdom of the tough, bold leadership without appeasement will hit home soon enough. Meanwhile, I will promise not to say, I Told You So

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concernedcitizen 7 years, 6 months ago

thank goodness the PLP rarely delivers on there campaign promises ..don,t worry they only give creedance to Moodys or Standard and Poors when it benefits them for political reasons ,,This next chorus we wiil probably hear is ,these foriegners no nothing and it is our duty to take care of our people ,read supporters, and saddle our great great grans with more debt .. did anyone think if the gov ,promises to pay your mortgage more people will default ..hey more money to spend on numbers and sweathearting ,,i would lmao if it wasn,t so easy to dupe 75,000 people

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TalRussell 7 years, 6 months ago

Why didn't The Tribune and Moody’s, along with your Executive Bankers who could have gone off the record to speak on conditions of anonymity when Hubert just a week ago was flying all over the damn place with his long laundry list of promises and projects that he, Moody’s, and your Banker Executives knew darn well our economically deprived Bahamaland just couldn’t afford. My position remains that PM Christie and all future governments should get the hell out of both the mortgage and Housing business. It’s not the plan that doesn’t work, it the whole idea that government should be involved in anything other than National Security to protect our borders and natives and to create a free and fair private market. No PLP administration, Pindling’s or PM Christie’s, has ever brought our Bahamaland closer to a socialist state than Hubert’s FNM regime came closerto doing.

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concernedcitizen 7 years, 6 months ago

iwas trying to do some work when it finally hit me ,,talrussell your really a very shrewd FNM that blogs like this to make PLP bloggers seem dumb ..with all do respect to intelligent PLP,s ..come on the cats out of the bag ...got the socialist state thing wrong though ,opening the airwaves is anti dictator ,,,,good little FNM talrussell your making PLP bloggers look incredibly stupid

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TalRussell 7 years, 6 months ago

Both a littler dumber and smarter that you care to acknowledge. Read what I said and have said for a long time that I do not think the FNM nor the PLP should be in the mortgage or housing business.The point that misses whatever you've got upstairs is that long before PM Christie and Brave Davis hit the 2102 General Elections campaign, there were internal reports of serious concerns over the growing number of mortgage defaults going in the 60-90 days default column of the ledger. PM Christie has all the memo's now and he better learn how to use them against Hubert, cause he ain't going nowhere in July, for good.

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concernedcitizen 7 years, 6 months ago

heee hee heee hee ,hes in the bushes behind your house ..the mortgages being talked about here are private sector mortgages not the ministry of houseing ,,pretty girls watch PGC wife is going back to Atlanta soon and PGC will be on the loose

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Rontom 7 years, 6 months ago

You dont even get when you're being satirized. Pathetically, impish being

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MartGM 7 years, 6 months ago

Let it be known that Moody's wasn't the first to forecast the problems with this type of policy. CFAL wrote 2 particular blogs on this issue...if you care to read:

http://www.cfal.com/index.php/cfal-bl...">http://www.cfal.com/index.php/cfal-bl... I don't understand how ANY sensible person could honestly believe the Government needs to take responsibility for something that in most cases very irresponsible persons got themselves into. Furthermore, how could the government facilitate this kind of thinking by bringing forth such policies. Do we now see understand the root of our "entitlement" problem... It befuddles me that other financial institutions didn't come forth sooner. Perhaps fear of Government backlash was too great! It's a shame!!

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dacy 7 years, 6 months ago

I HAD GIVEN THEM 18 MONTHS LIKE THE LAST TIME...BUT THEY MIGHT JUST SET ANOTHER RECORD....

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B_I_D___ 7 years, 6 months ago

Ahhh...Leslie Miller was right all along...the Bahamian people truly are stupid, they believe whatever is put before them and whoever yells the loudest.

PLP says they will kick out JCCC Road Contractors...now...maybe not...

PLP says they will pay off everyones mortgages...now the international rating agencies say we'll be downgraded...so then again...maybe not...

PLP says it is working to employ the Bahamian people...yet it cancels the work placement program run by the Ministry of Finance...

You reap what you sow people...welcome to the organized crime wave of the PLP politics, trying to dig the Bahamian sink hole even deeper...

Oh wait!! One more thing...let's decrease all the crime legislation so we can let all our criminals go free that are crying that they did the crime, but did not want to do the time.

Way to go!! 10 days into power and the country is about to implode.

Woohoo!!

B.I.D...

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dacy 7 years, 6 months ago

HAHAAA HE....IF YOU BELIEVED ANY THING THOSE PEOPLE SAID YOU BEEN HOOKWINKED...LIE TO....

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symboslice 7 years, 6 months ago

Let's pray that the US financial experts have seriously miscalculated their figures for all of our sakes!! What is more frightening to me however, is the fact that a leopard doesn't change its stripes!! Hopefully the PLP regime is a completely different animal!!

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Rontom 7 years, 6 months ago

We are a developing country--i.e. not sufficient in most industries, but in gross economic terms, our population is too small to have a sufficiently diversified work-force to meet all of our needs. And because we have too small a work-force, we have too few farmers to grow enough food to be self-sustaining. Therefore, we have to import our food from outside of the country. Since we spend monies to buy food, that means we have less money to maintain, develop and invest in our country. Remember, we have a small work-force which means, there isnt enough persons working to collect revenues (taxes) from. So, in order for the govt to meet all of its demands for good governance: building roads, schools. buy medicines, subsidizing utilities, etc, it needs another means in which to get money. One such way is by selling securities: government bonds. (Another is by foreign direct investment.) G-bonds attract investment in the country (foreign and/or domestic). But the country must demonstrate its ability to pay the amount promised on those said bond. Factors that affect the country credit-worthiness are, default history, inflation and government stability among others. The country is then given a credit rating which, if favorable, attract foreign investments. WITHOUT this kind of investment, WE wont be able to buy medicine, build schools, pay doctors, teachers, magistrates. WITHOUT this investment, we wont be able to have enough moneys to import ANY of the 85% of items that we do. So, A NEGATIVE CREDIT RATING is very, very BAD and signals to the would-be investor to stay away, stay far away from our shores.Let us pray, the PLP really think long and hard before they do anything to adversely impact our economy

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1plpgovernment 7 years, 6 months ago

Well They say, majority rule (sadly it is the majority of people the Great Leslie Miller say are stupid) PLP All they way!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Again this is what we want. Well said BID. PS. Rt hn oil man Christie, and deputy "90" Davis, and set the captives free Minister of insecurity, BJ please lock up the staff at Pinders and Kellys. Dey ain want me buy no plywood to post your daily murder for our visitors to see .............Suck teeth!!!!!!!!!!!!11

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dacy 7 years, 6 months ago

PLP IS THE ONLY THING EM WANT...(SINGING IN MY BEST RYAN PINDER VOICE)

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Philosopher_King 7 years, 6 months ago

I am appalled at all of you who think some how with out some kind of government assistance our troubled mortgage industry is going to work itself out. The record arrears and defaults that are sitting on most of the banks books waiting for a miraculous turn around in the economy for people to pay start paying double on their mortgages than originally agreed in fees and penalties isn't coming anytime soon. This is the new economic reality for the next 2-5 years or longer and all western financial institutions who refused to deal with it since 2008 are still in peril. Yes they can continue to book toxic assets or overvalued homes as assets, and collude with the real estate industry to artificially prop up prices in The Bahamas or they can work with the government on some program. Maybe not this one, but some relief program for the over taxed borrowers has to be implemented eventually. For if not we are dooming a large segment of our society to permanent underclass and hopelessness, because there is no such thing as filing for personal bankruptcy in the Bahamas. If you think having a permanent underclass is just ok with you, then I suggest you invest in guns, guard dogs and a bullet proof vest my friends.

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concernedcitizen 7 years, 6 months ago

already got the dogs ,working on the vest and a legal gun

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MartGM 7 years, 6 months ago

I don't think people are thinking consumers can get out of this crisis solely by themselves. A plan that says the government will pay your mortgage is only giving me an incentive to discontinue paying my mortgage even if I didn't default on mortgage payments. It's a poor plan and its execution isn't feasible. Government assistance is most definitely necessary, but not in the form of a handout. This is somewhat similar to extending unemployment payouts. The longer you extend it, the more incentive I have to stay home and not look for a job. I hope one of Mr. Christie advisers (hopefully an economist) will have the guts to tell him this plan is absolute garbage for everyone involved and they need to go back to the drawing board!

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skinnyred 7 years, 6 months ago

I read a comment that said the tribune is blaming the last five years on the PLP, I take it this person only went with the hipe of what was going on during the campagnes because if they really listen and reseached all the promises this country would not be in the position they are in because we as bahamian do things of emotions and not logic we have a long five years ahead of us the tribune blamed nothing on the PLP they only stated what was said about the Bahamas.

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Nim 7 years, 6 months ago

To put it in the most simple terms:

We cannot have our cake and eat it too!

We cannot maintain BIG government and be fiscally responsible. It's just not feasible. The government has its hands in everything most of which it has no track record of success in managing effectively but political parties want to remain positioned to speak to every whim and fancy of the public so government responds by holding on to industries it shouldn't or rather holding them hostage!

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Philosopher_King 7 years, 6 months ago

Let me start by saying as an entrepreneur I know first hand BIG GOVERNMENT can become over bearing and gunk up the works if left unchecked, but I hear a lot of nonsensical Fox News drivel about Big Government being spewed on this website all the time. Let's get over the fantasy that big government is all bad; for in the US there isn't one industry besides porn that doesn’t feed at the trough of Big Government or in fact any large company that haven’t made billions from Big Government existence. For even McDonalds gets billions in subsidies to grow cheap wheat for buns and beef for hamburgers, Anhieser Busch does too, hell even Hershey Chocolate made it's first big money in WWII selling chocolate by the ton to the US Army. Everybody from Oracle, Google to Microsoft all count the US Government as their biggest customer. The internet created by US military research, the postal service and highway system allowed everybody from Sears to Amazon to even exist in the catalog and now online sales business. Don’t get me started how these companies enjoy the might of the US military to settle their business disputes: ask Mexico how a few disgruntle farmers in their Great State of Texas or Liberia about Goodyear and Hershey getting the cavalry to come running when they whistled. It’s only when the government on behalf of the citizenry wants to regulate or question the super wealthy or these behemoth companies do they cry Big Government, but when they need tax loop holes, subsidies, grants and free research they’re glad to take it no questions ask. Without Big Government the US today would be half it’s size with dirt roads connecting states and a semi-illiterate farm population, but I guess that’s what conservative Bible thumping homesteaders want them to go back to/ Bahamians think for yourselves these simplistic thinking Americans say they want to reduce government and it’s services, because the nation is browning and it’s a “I don’t want my money to go them” mentality. Let the immigrants and new births have been majority from Europe or of European descent they’d be happy to give them status, a job and share in the wealth of the country.

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TalRussell 7 years, 6 months ago

I have tried to remain fairly quiet since Decision 2012 and it has allowed me to watch in total amusement how the nine Hubert puppets returned as Queen Liz's official opposition in the House have come out of the closet to voice their opinions and concerns and to persuade others that Decision 2012 was just one big vote buying mistake. These are the same FNM' s that Hubert would even allow to put up an campaign poster with their face on it.

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concernedcitizen 7 years, 6 months ago

This comment was removed by the site staff for violation of the usage agreement.

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TalRussell 7 years, 6 months ago

This comment was removed by the site staff for violation of the usage agreement.

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Cc 7 years, 6 months ago

Hubert say dis, Hubert say dat, Hubert say da next ting. Hubert, Hubert, Hubert, Hubert. Tal Russell, it still ain too late for you to get that life I advised you about ya know.

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concernedcitizen 7 years, 6 months ago

naw its too late ,medication may help but thats even a stretch,really though it wouldn,t be as fun without talrussell ..comrades i,m not making this up ,,sounds like my sis when she used to try to trick me into things ,,come on i,m not making this up

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242 7 years, 6 months ago

What on earth does that have to do with the article above?

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concernedcitizen 7 years, 6 months ago

psssst hee hee heee heee , hes der in da bushes ,hear im hee hee heee hee

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242 7 years, 6 months ago

Tal Russel I have a challenge...without using the word Hubert, Ingraham, or FNM give a reason why you support the PLP

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TalRussell 7 years, 6 months ago

Like many natives I too have reluctance when it comes to the PLP. The other side was I had to flip a coin to make up my mind if I would trust PM Christie with the future of our Bahamaland and the answer was yes, with a watchful eye. Let’s see wait and see what his first 100 days back in office results in. There will be no instant fixes to the crime epidemic. We have borrowed beyond sound financial management and tough “leave the damn politics out of it” decisions will be required. Does PM really mean to put the natives first? Did he read the riot act to certain ministers he reappointed? I have never believed in government acting as the Bahamaland’s employment or social assistance agency. Make cabinet meetings as open to the public as our national security can permit, and to hold cabinet meetings via video conferencing to the Family Islands. We’ll talk again after the 100 days is up. You can be assured I will not pull back when some serious frankness is required.

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concernedcitizen 7 years, 6 months ago

that sir.mam is an intelligent comment

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BigD1 7 years, 6 months ago

Mr. Russell, no mention of HAI, no natives, this is truely a breakthrough. There is hope after all

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concernedcitizen 7 years, 6 months ago

its is a breakthrough ,an intelligent ,well written comment with no mention of HAI

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