The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s plan to finance the construction of 1,000 new homes through a $100 million Bahamas Mortgage Corporation (BMC) bond issue was yesterday described as “fiscal schizophrenia” by its immediate past chairman.

Dr Duane Sands, a former FNM Senator, told Tribune Business that the Mortgage Corporation’s precarious financial situation meant it could “absolutely not” bear such an aggressive debt financing.

Dr Sands said the plan, unveiled by Prime Minister Perry Christie in his 2015-2016 Budget presentation, seemed at odds with the largely “fiscally prudent” stance that he took during the remainder of his presentation.

He suggested that the Government’s housing plans were “a bit of pork barrel politics” that was thrown out to keep the Government’s political supporters happy,

Mr Christie, in the midst of his Budget presentation, said: “The Bahamas Mortgage Corporation has approved the issuance of $100 million in bonds, which will jump start the Government’s aggressive housing program and add over 1,000 new housing units to our inventory.

“Through private-public partnerships, it is hoped that the Government will complete the programme over the next two years. The programme will also create thousands of jobs in the sector for skilled and unskilled labour; and allow for many more Bahamians to fulfill the dream of home ownership.”

Dr Sands described this as “an absurd concept”, especially in the absence of evidence that the Mortgage Corporation’s financial health had improved over the past three years.

“I think it’s an absurd concept in the sense that there were many, many items in his presentation that I thought struck a notably fiscally prudent stance,” Dr Sands told Tribune Business.

“It is difficult for me to understand, with the sovereign debt as high as it is, the debt-to-GDP ratio more than 70 per cent, the number of defaulters at the BMC already and, in addition to that the backdrop of $700 million-plus mortgage defaults and delinquencies in the Bahamas, why we want to go down this road.”

Dr Sands told Tribune Business in August 2012, just months after he demitted office as chairman, how the Mortgage Corporation needed an immediate $40-$50 million injection to maintain its viability.

He added that, at that time, there were some 1,100 mortgage borrowers in default, accounting for between 35-40 per cent of the Corporation’s loan portfolio.

The Mortgage Corporation finances the Government’s housing programme via the issuance of bonds to investors, typically the National Insurance Board (NIB) and other investors.

These investors are then repaid from the proceeds generated by borrower payments to the Mortgage Corporation. The Government, and Bahamian taxpayer, guarantee the debt in these bonds, which are repaid from a ‘sinking fund’ that - at the time Dr Sands left office - had an $80 million deficit.

Financial projections crafted in 2012 suggested the 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.

“It seems to me to smack of fiscal schizophrenia,” Dr Sands said of the plans unveiled yesterday by Mr Christie.

“On the one hand, he acknowledges the need to roll out National Health Insurance (NHI) in phases. It sounds as if he maybe gets it, that we’re in the fiscal cliff and then, out of his mouth, comes this absurd comment about 1,000 new homes.

“I don’t think any sensible economist can rationalise this decision. I can only suggest this is a bit of pork barrel politics put out for the party faithful.... I suspect he had to give one for the team.”

Dr Sands added that there had been no reports of a turnaround in the Mortgage Corporation’s financial position from its chairman, managing director, Board or responsible minister.

Mr Christie’s statement yesterday also contrasts sharply with the position taken by Kenred Dorsett, minister of the environment and housing, last April.

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

Mr Dorsett added that the Christie administration was trying to restore the Mortgage Corporation to health by securitising its loan portfolio.

“When my colleague minister [Shane Gibson] came in in 2002, he was able to raise bonds up to $130 million to begin the construction boom,” Mr Dorsett said in April 2014.

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

“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.”