By NEIL HARTNELL
Tribune Business Editor
Sir Franklyn Wilson’s group has “gotten off to a wonderful start” with its ‘bad mortgage’ restructuring venture, which helped drive a $65 million year-over-year decline in banks’ non-performing home loans during the 2016 first half.
The Sunshine Holdings chairman confirmed to Tribune Business that his group’s newly-created entity, Gateway Financial, had recently acquired “several hundred” delinquent mortgages from one of the Bahamas’ main commercial banks.
He added that Gateway’s efforts to subsequently restructure these loans had already proven “very effective”, and would allow many borrowers to remain in their homes on terms better aligned with their financial circumstances.
Sir Franklyn described the Gateway initiative as potentially “very significant” when it came to reviving the Bahamas’ stalled housing and construction markets, adding that it would bring both social and economic benefits.
“It’s public knowledge, or ought to be public knowledge, that a company called Gateway Financial did acquire a portfolio of mortgages from one of the banks, and is running a programme that has gotten off to a wonderful start,” the Arawak Homes chairman told Tribune Business.
“There are some home owners giving testimonies that will eventually be made public, but suffice to say that there are a number of smiling faces on people whose mortgages have been restructured. It’s proving to be a very effective initiative.”
Sir Franklyn confirmed that Gateway Financial was part of the Sunshine Holdings’ group, and was owned by two of its member companies.
“Our corporate group is involved with it,” he said. “It’s [Gateway] a group in which Sunshine Finance and RoyalStar Assurance are the two equity partners.”
Sir Franklyn added that Gateway Financial was doing “whatever it takes” to keep previously delinquent Bahamians mortgage borrowers in their homes.
He explained that the company was aided in this task by its “non-bank” status, which meant it was not burdened by the laws and regulations governing what commercial banks could do to aid struggling homeowners.
As a result, Sir Franklyn said Gateway Financial had much more “flexibility” when it came to devising solutions that were specific to each defaulted borrower’s circumstances.
“They[Gateway] do whatever they can to help people stay in their homes,” he told this newspaper.
“They can be as aggressive as circumstances allow, and that puts them in a position to do stuff banks are not able to do. It’s working. Because it’s a non-bank, they have the flexibility to do whatever it takes.”
Sir Franklyn declined to identify the Bahamian commercial bank from which Gateway Financial had purchased the distressed mortgages, saying only that it was “one of the big clearing banks”.
Nor did he state the ‘purchase price’ paid by Gateway Financial and how heavily the portfolio was discounted, or the new terms offered to those mortgage holders, although much-reduced interest rates are likely to be part of the package.
Entities such as Gateway have been viewed as part of the solution to the Bahamas’ entrenched mortgage/housing market crisis, as they can reduce the pile of ‘bad loans’ weighing down commercial bank balance sheets.
Selling such distressed loans enables commercial banks to recover some of their previous provisioning, and releases capital for lending to better-qualified home purchasers.
This, in turn, could help to revive the Bahamian mortgage market, which at end-June 2016, was still grappling with some $608.4 million worth of loan arrears.
And kick-starting commercial bank lending, and stimulating the domestic (Bahamian) housing market, would also boost key industries such as construction and real estate, increasing activity throughout the economy.
“It’s something that could be very significant,” Sir Franklyn told Tribune Business of Gateway Financial. “The people stay in their homes, stabilise themselves in circumstances they can live with, and we get these distressed mortgages off the market.
“And the more we get them off the market, the quicker the potential to restart the home construction market.”
Sir Franklyn added that initiatives such as those being pioneered by Gateway Financial would also reduce the number of abandoned houses seen throughout New Providence and Grand Bahama, and said: “There’s social and economic implications to it.”
The Sunshine Holdings group’s Arawak Homes subsidiary would be among the prime beneficiaries should the hoped-for impact of Gateway’s activities fully materialise, but the wider Bahamian economy and society would also feel the same positive effects.
The Central Bank of the Bahamas, in its report on June’s economic developments, acknowledged that Gateway Financial’s ‘acquisition’ had helped to produce a 12.5 per cent year-over-year decrease in non-performing bank mortgages during the 2016 first half.
This, in turn, drove a $63.2 million (7 per cent) decline in the Bahamian commercial banking industry’s total non-performing loans (those more than 90 days past due) over the same period.
“The reduction in total arrears was primarily due to a contraction in the dominant mortgage segment by $88.8 million (12.7 per cent) to $608.4 million, largely due to a $65.3 million (12.5 per cent) decrease in the non-performing category—partly related to the sale of some non-performing claims,” the Central Bank confirmed.
The prime candidates as the source of Gateway’s distressed mortgage portfolio are likely to be Scotiabank, Royal Bank of Canada (RBC) or Bank of the Bahamas.
Tribune Business last year reported that Scotiabank, and its Toronto head office, were especially keen that an entity such as Gateway Financial be established in the Bahamas.
The bank was then looking towards Ascendancy, a Mexican company that had successfully undertaken a similar task in dealing with its non-performing loans in that nation.
Tribune Business sources familiar with the Ascendancy situation suggested its arrangement with Scotiabank involved purchasing around $30 million worth of the latter’s mortgage portfolio at a price equivalent to $0.24-$0.25 on the $1, or 25 per cent of their value.
Ascendancy was initially supposed to enter a joint venture partnership with Sir Franklyn’s group, but the Gateway Financial ownership - Sunshine Finance and RoyalStar - indicates this arrangement has been altered.
Sir Franklyn confirmed as much, disclosing that Gateway has a “strategic relationship” with Ascendancy, which was helping with its systems and in other areas.
Tribune Business revealed earlier this year how RoyalStar, one of the Bahamas’ main property and casualty insurers, had invested $3.45 million to acquire preference shares in a company called Ascendancy Bahamas.
Anton Saunders, RoyalStar’s managing director, confirmed then that Ascendancy Bahamas had been created to buy distressed mortgage loans from Bahamian commercial banks at deeply-discounted prices.
This indicates that Ascendancy Bahamas has been renamed as Gateway Financial. The latter’s changed ownership structure is possibly a response to Government concerns, which delayed the issuance of Gateway’s necessary permits.
Some suggested the Government had wanted to unveil its own Mortgage Relief Plan first, while others said the Christie administration was afraid of the potential stigma/backlash associated with a Mexican company’s involvement in acquiring distressed Bahamian loans and subsequently impacting Bahamian lives, especially just before a general election.