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Moss’S Bill Set To Exacerbate Mortgage ‘Crisis’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The FNM’s deputy leader yesterday warned that the Private Members Bill introduced by fellow MP Greg Moss will only exacerbate the Bahamas’ mortgage crisis by further increasing the reluctance of commercial banks to extend home loans.

K P Turnquest told Tribune Business that the consequences flowing from the United Democratic Party’s (UDP) leader had not been properly “thought through”, and would likely make mortgage market conditions even worse.

Describing the Bill as a variation of the Progressive Liberal Party’s (PLP) Mortgage Relief Plan, for which Mr Moss has claimed to be an architect, Mr Turnquest said it would only increase lending risk for the banking industry.

He argued that his fellow Grand Bahama MP should instead focus on strengthening consumer protection legislation to ensure that Bahamians understood their obligations under a mortgage contract, and the consequences if they default.

The Bill, as tabled, is designed to amend the Conveyancing and Law of Property Act by requiring Bahamas-based banks to obtain court approval before they can sell properties owned by delinquent borrowers. It is intended to make Bahamians more secure in their homes, even if they are bad borrowers.

Apart from refusing to authorise a sale, the Bill seeks to give Supreme Court judges powers to unilaterally extend the repayment period for delinquent borrowers; override accelerated repayment clauses in mortgage contracts; and to capitalise past due interest and permit arrears to be repaid over the mortgage’s lifetime.

The Bill suggests the courts will account for the borrower’s payment history, and factors such as remaining mortgage length and outstanding balance, when making these decisions.

However, if passed into law it will effectively prevent Bahamian commercial banks and other mortgage lenders from exercising their ‘power of sale’ in respect of delinquent properties - something that is written into mortgage contracts, and does not have to go before the courts.

Mr Turnquest said that faced with the increased difficulty of realising on loan collateral, and the prospect of becoming bogged down in the Bahamian court system, the banking industry’s mortgage lending risk would drastically increase.

To compensate, they would likely tighten lending conditions via measures such as increased equity down payments and higher interest rates, all of which will make it more difficult for good, new Bahamian borrowers to purchase their homes.

Mr Turnquest said that, in effect, by helping existing delinquent homeowners, Mr Moss’s Bill would penalise potential new borrowers if it became law, and further depress the housing, construction and real estate markets - all sectors key to the Bahamian economy’s revival.

“It is a Bill, a proposal that has not been all the way thought through,” the FNM deputy leader said of Mr Moss’s Bill. “Whenever you introduce a third party risk into a contractual relationship between one party and another, there are going to be demands for compensation.

“The banks will likely respond by requiring higher equity down payments up front, and may also require higher interest rates to compensate for that risk.”

Mr Moss and the UDP argue that the Bill is merely designed to bring Bahamian statute law into line with that of the UK, and its Administration of Justice Act.

From a political perspective it is a neat measure, because if the Bill makes it to a second reading and debate in the House of Assembly, Government and Opposition MPs will be perceived as siding with the banks (especially the foreign-owned ones) and against struggling Bahamians should they vote against it.

Mr Turnquest, though, warned that in the absence of consumer protection legislation, the Bahamian people would feel the full force of any banking industry response should Mr Moss’s Bill become law.

Recalling the precedent for this, Mr Turnquest said that when the Government hit the banks with the new 3 per cent Business Licence fee and tax on repatriated profits, they simply passed the increased costs on to consumers in the form of hiked fees and service charges.

“In the absence of consumer protection legislation, we’re paying the price for a new indirect tax that is being passed straight through,” he told Tribune Business. “This Bill being proposed is going to do the same thing.”

Mr Turnquest added that Mr Moss and the UDP’s proposal also threatened to further ‘clog up’ an already-weak mortgage lending market, as shown by recent Central Bank of the Bahamas data.

The regulator’s report in 2015 second quarter lending conditions found that new mortgage applications, numbering 748, accounted for just 6.5 per cent of total new loan applications.

Just 12 per cent, or 89 per cent, of mortgage applications were for new residential home construction, emphasising the continued weakness of the domestic real estate and construction sectors.

“The truth of the matter is that it exactly indicates where our economy is; very little construction and right credit. Almost a recipe for crisis,” Mr Turnquest told Tribune Business.

“The Government introduced additional risk with the failed Mortgage Relief Plan, which tightened credit policies and increased the difficulty of getting a mortgage.

“Whenever bank profits take a hit, they react with more conservative policies, which is not good for anybody.”

Arguing that the Bahamian people were “swung” by PLP policies such as mortgage relief, Mr Turnquest questioned why Mr Moss could be trusted with this Bill, given his role in drafting the Government’s failed scheme - which the proposed legislation is essentially a variation of.

“He should be advocating for comprehensive consumer protection laws, so people are not taken advantage of,” he added of Mr Moss, “so they enter into these contractual relationships with full knowledge of their obligations and what happens if they default.”

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