The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A bank chief executive has warned that Government legislation “could have a negative impact on Bahamian access to home ownership”, as it completely alters the risk associated with mortgage lending.

Writing in Fidelity Bank (Bahamas) annual report, Anwer Sunderji said the Homeowners Protection Bill threatened to “significantly change the status quo” by inserting the courts into pre-existing contracts between bank and borrower.

“The Government’s proposed ‘Homeowners Protection Bill’, as the name implies, significantly changes the status quo ante and limits mortgage lenders in exercising their rights in the mortgage deed without court sanction, and allows for delinquent mortgagors to seek relief from the legal system,” Mr Sunderji said.

“As drafted, it promises to further increase the lending risk in this segment and may have unintended consequences that could have a negative impact on the economy in general, and access to home ownership in particular.”

Mr Sunderji is the first senior Bahamian commercial bank executive to express concerns over the Homeowners Protection Bill, and its likely impact on Bahamian access to mortgage financing, so bluntly.

To-date, the industry has adopted a ‘softly-softly’ approach to negotiating with the Government over its legislative plans for the sector. Talks have been conducted privately ‘behind the scenes’, although Kevin Teslyk, Scotiabank (Bahamas) managing director, had previously expressed some mild reservations.

The Homeowners Protection Bill has had its second reading in the House of Assembly, but its current status in the legislative pipeline is uncertain. It has not been passed into statute yet.

The banking industry’s concerns centre on the Bill making it much harder to realise collateral for delinquent mortgages, namely the underlying home of real estate.

If the court process increases the difficulty associated with this, banks will be unable to sell these properties to new buyers and repair already-battered balance sheets.

This, coupled with the perceived increased risk associated with mortgage lending, could result in debt financing for real estate deals drying up. If that occurs, the real estate market and construction industry - potentially the wider economy - could be sent into a new tailspin.

Mr Sunderji, meanwhile, denied that the banks were immediately turfing delinquent homeowners out on to the street.

Aided by an absence of qualified buyers for these properties, the Fidelity Bank (Bahamas) chief said: “Over 90 per cent of the bank’s delinquent properties continue to be occupied by mortgagors, or their tenants, some for in excess of three years.

“Regrettably, not all delinquencies since the onset of the recession have been a function of job losses, lower earnings or chronic illness. Some homeowners have simply chosen not to pay their mortgage obligations but continue to service their credit card debts and auto loans.”

Non-performing mortgages held a 76 per cent share of Fidelity Bank (Bahamas) bad loan portfolio, Mr Sunderji said, reiterating that “the risk-reward equation in this segment of the credit business has deteriorated sharply”.

The bank increased its loan loss provisions by 98 per cent to $3.95 million in 2012, and Mr Sunderji revealed that almost one-third of applicants to the Government’s initial Mortgage Relief Plan failed to qualify because they had no income to support even a restructured loan.

“Some 436 delinquent mortgagors with over $70 million in principal balances outstanding have applied for assistance,” Mr Sunderji said.

“Over 63 per cent have not qualified for a variety of reasons, including nearly 30 per cent who do not qualify due to their income being insufficient to service even the restructured debt.”

Fidelity Bank (Bahamas) has restructured around $17 million in mortgage loans since the start of the recession.