The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Minister of Housing yesterday said it would be “irresponsible” for him to use the Bahamas Mortgage Corporation to finance the Government’s affordable homes programme, conceding that its cash-strapped status had proven “a tremendous challenge”.

Kenred Dorsett, speaking as his Ministry signed a Memorandum of Understanding (MoU) with Bahamian realtors to help advance the Government’s housing initiative, reiterated that then Christie administration was trying to restore the Mortgage Corporation to health by securitising its loan portfolio.

“It has been a tremendous challenge,” Mr Dorsett responded, when asked by Tribune Business about the impact the Bahamas Mortgage Corporation’s financial woes have had on the Christie administration’s desire to kickstart the affordable housing initiative.

“When my colleague minister [Shane Gibson] came in in 2002, he was able to raise bonds up to $130 million to being the construction boom.

“It would be irresponsible of me, given the delinquency rate and challenges it [the Mortgage Corporation] has to issue more bonds,” Mr Dorsett added.

“We are trying to get the Bahamas Mortgage Corporation healthy again. The Ministry of Finance is going to complete a Request for Proposal to enable us to look at securitisation of the mortgage portfolio.

“We hope that helps the Bahamas Mortgage Corporation raise the necessary funds and get it right. But we can’t wait for that. The Bahamas Mortgage Corporation has been the traditional source of funding for the Government housing programme, but we can do business with approved lenders.”

The Bahamas Mortgage Corporation has traditionally financed home construction, and the build-out and infrastructure installation, for all government subdivisions, raising funds from institutional investors - the lion’s share from the National Insurance Board (NIB) - via bond issues.

These funds are then repaid via the mortgages issued to purchasers of the Government’s affordable homes. However, this model has been beset by high delinquency rates that have exceeded 30 per cent, making it progressively harder for the Bahamas Mortgage Corporation to meet its obligations.

Financial projections crafted in 2012 suggested the Bahamas Mortgage Corporation needed a capital injection of more than $117.129 million to enable it to meet all bond principal and interest payments when they become due.

The real challenge for the Mortgage Corporation, and by extension the Government and Bahamian taxpayer, will come in the four years starting 2023, when $106.7 million in bond principal becomes due.

And the Mortgage Corporation chairman under the former FNM administration, Dr Duane Sands, previously likened the securitisation plan to selling so-called ‘junk bonds’.

Securitisation, which was employed as a form of risk diversification, became the technique widely-blamed for sparking the 2008 financial crisis.

Banks packaged up their mortgage loans in pools, and sold off securities (shares) in these pools to other financial institutions.

The ‘buyer institutions’ were paid through the interest mortgage holders paid on their loans but, when borrowers started to default, these income sources dried up.

Still, recognising the importance of kick-starting the Government’s affordable housing programme, Mr Dorsett said that his Ministry’s files indicated eight to 10 construction jobs were created by each of the 1,300 homes built during the 2002-2007 Christie administration.

“That’s the one sector [construction] where we know money trickles down at all levels of society,” he added, indicating that the Government was prepared to enter into joint ventures with private contractors and developers if they could deliver “turnkey” solutions that met the Government’s standards.

The Ministry’s MoU with the Bahamas Real Estate Association (BREA) marks the first concrete step to integrate the private sector into the affordable housing programme, with many observers believing this is an area where, again, the administration should not be in business.

Several have argued that the Government should consign itself to being a regulator, and use its position as the nation’s largest landowner to sell select tracts of Crown Land to private developers for conversion into low and middle income housing subdivisions.

“The Government has significantly subsidised the cost of land with respect to these transactions,” Mr Dorsett said of government subdivisions. “We hope to minimise that, but there will always be some subsidisation.”

The Minister said that while the Bahamas Mortgage Corporation was able to lend sums up to around $230,000, and do private-initiated funding, prices at the lower end of the Government housing programme were around $70,000.

“I know there are probably thousands of Bahamians that would love to see that at $60,000 or $55,000 in terms of being able to get an affordable home,” Mr Dorsett said, adding that the Ministry was eager to see if new construction techniques being employed by developers could drive down costs.

Full privatisation of the Government housing programme may be some way off, but Mr Dorsett said: “I truly believe that if we’re going to meet the housing needs, there has to be an environment where the private sector drives this in terms of meeting demand.

“There have been hundreds, hundreds, hundreds of people waiting for [homes for] years. The only reason they have turned up at the Government’s door is because no one else is providing the product to meet the demand. There is demand; provide the product.”

Asked why it had taken so long to bring the private sector into the affordable housing programme, Mr Dorsett said he understood “the benefits of having BREA and its members at the table”.

“All good things happen at the right time,” he added. “It’s never too late to do the right thing, and I believe this is the right thing; to involve BREA in a significant way in this housing programme from a co-operative and advisory standpoint. I’m happy we’re here, and believe good things will come out of this.”